FOCUS OF THE DAY
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
STOCKS ON THE RADAR
Destini, JCY International,Sam Engineering &
Equipment,Ikhmas Jaya Group
ECONOMIC HIGHLIGHTS
Malaysia : Manufacturing remains healthy, supported by
exports
NEWS HIGHLIGHTS
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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