KUALA LUMPUR: The Malaysian stock market is well supported by sound domestic fundamentals despite the recent sell down stoked by Dow Jones’ correction, according to Maybank Investment Bank (Maybank IB).
The research house also expects five overarching themes for the local stock market in the first half of the year.
“Fiscal stimulus in pre-14th General Election (GE14) and Bank Negara Malaysia (BNM)’s overnight policy rate (OPR) hike will be the two main thematics driving investment,” it said in a note today.
“For a longer term play, the focus is on three other thematics which are a multi-year orderbook replenishment in infrastructure construction; tourism; and the “Look East” policy,” continued the note, adding that it is overweight on Automotive, and Oil & Gas (O&G) this year.
Consumer-based stocks would be the potential beneficiaries for the first theme, as fiscal stimulus will help boost disposable income, while the OPR hike will likely have a positive impact on banks.
“For the multi-year orderbook replenishment in infrastructure construction, Maybank IB favours proven contractors who have delivered over the years, and have high potential of winning the upcoming mega works. These include Gamuda, IJM Corp and Sunway Construction, and Cahya Mata Sarawak,” said the note.
“The tourism thematic is driven by increase in higher quality/higher-spend tourists and Visit Malaysia Year 2020, which is expected to give a boost to tourism as was the case in the previous two in 2007 and 2014.”
For the Look East Malaysia theme, Maybank IB sees latent potential in East Malaysia and East Coast Peninsular Malaysia.
It expects the major backbone infrastructure currently under construction, namely Pan Borneo Sarawak Highway, Pan Borneo Sabah Highway, and East Cost Rail Link, to lift economic activities.
“For Sarawak, the Development Bank of Sarawak and PETROS (Petroleum Sarawak Bhd) and for Sabah, the Sabah International Petroleum Sdn Bhd are also catalysts. Long term potential beneficiaries of this thematic are Cahya Mata Sarawak, Hock Seng Lee and KKB Engineering, Bintulu Port, Suria Capital and IJM Corporation,” it said.
Maybank IB’s top stock picks for 2018 are IOI Corp, Hong Leong Financial Group, Gamuda, Yinson, Genting, Cahya Mata Sarawak, Bermaz Auto, and YTL Hospitality REIT.
The regional investment bank also expects Malaysia’s macroeconomic backdrop to remain positive in 2018 with another year of above-five per cent real gross domestic products (GDP) growth, at +5.3 per cent, continuing the momentum from 2017.
“The growth is underpinned by sustained consumer spending growth momentum, stronger growth in investments with existing and rollout of new major infrastructure and investment projects, and the rebound in Government consumption expenditure,” it said, stressing that it is still optimistic on the ringgit and has recently revised its end-2018 USD/MYR forecast of 3.90 to 3.65.
Amidst positive global macros and momentum, the investment bank highlighted two key market risk factors that could derail sentiment, namely geopolitic risks, and financial imbalances and instability which include a faster-than-expected step up in the US Fed’s monetary policy normalisation.
Maybank IB said that it also expects the Malaysian stock market to continue to be volatile running up to the GE14. Post the 14th general election, market will be back to being driven by fundamentals which are well supported by GDP and corporate growth expectations.