Tuesday, March 14, 2017

Strategy : Malaysia A Winner As Emerging Markets Brave Political Uncertainty In Eurozone

Strategy : Malaysia A Winner As Emerging Markets Brave Political Uncertainty In Eurozone

A political crisis in Europe will shift the market back to the "risk-off" mode. Investors are likely to retreat to safe haven trades, i.e. long positions in US Treasuries, gold and the Japanese yen. They are likely to unload European equities (due to increased risk premium and greater political and economic uncertainties), US equities (due to rich valuations) and Japanese equities (due to a strengthening Japanese yen). However, they may not be in a hurry to dump emerging market equities, as a political crisis in Europe means the Fed may hold back from raising rates aggressively – which is a bullish factor for emerging-market currencies, equities and bonds. Against a backdrop of a more stable currency outlook, we believe investors will start to pay more attention to the cyclical upturn in corporate earnings in Malaysia, as reflected in +7.2% and +8.3% growth in FBM KLCI earnings in 2017F and 2018F respectively, based on our forecasts.
Under this circumstance, we believe cyclical sectors will start to outperform the broader market, i.e. financial services (CIMB and RHB Bank), property (MRCB and Sunway) and consumer discretionary (Padini). Also, small- and mid-cap stocks could be in the limelight thanks to the government's mandate to GLC funds in Budget 2017 to allocate up to RM3bil to invest in this space, backed by equity research financed with an initial funding of RM75mil from the Capital Market Development Fund administered by Bursa Malaysia. We like high-growth small- and mid-cap stocks such as VS Industry, OldTown and Bison. Our top buy list will not be complete without including Tenaga and Gamuda – large-cap stocks which offer strong earnings resilience at undemanding valuations. We maintain our end-2017 KLCI target of 1,745pts and introduce our end-2018 KLCI target of 1,900pts, based on 17.5x 2017F and 2018F earnings respectively.

Others :
Economics/Strategy : The Netherlands – Election is expected to set the tone for euro

Destini, JCY International,Sam Engineering & Equipment,Ikhmas Jaya Group

Malaysia : Manufacturing remains healthy, supported by exports

Education Sector : Sasbadi wins deal to publish past-year STPM and MUET papers
Banking Sector : Bank Rakyat a takeover target
Manufacturing Sector : PIE eyes four big projects

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