Thursday 28 Mar 2024
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JPMorgan Malaysia has recommended that investors consider exposure in defensive growth, infrastructure, tourism and subsidy rationalisation-related sectors amid lower oil prices and slower consumption this year.

Mak Hoy Kit, executive director of equity research at JPMorgan Malaysia, said the FBM KLCI was moving in the same direction with global oil prices, which are 44% lower than last year’s peak.
Brent crude oil slipped to around US$65 a barrel this morning. JPMorgan Malaysia expects oil to fall to US$62 a barrel by the end of this year.

In a press briefing today, Mak said low oil prices will affect corporate valuations and “earnings may have to take a leg down”.

“Consumption will also slow down post-GST. We expect a temporary slowdown in consumption before picking up again later this year. We are looking at margin pressures on both side of the balance sheet for banks,” he said.

Mak said he sees some downside risk to the local market’s earnings growth estimated at 6.2% this year. Under these circumstances, he suggested four themes for investment exposure.

“We want to be exposed to four themes in the second half of this year. We are looking at the defensive growth sector ... We also like healthcare and selective real estate investment trusts.”
Mak told the media that infrastructure is one of the four themes that will be spurred by the upcoming 11th Malaysia Plan. He also suggested that the tourism-related theme accounts for 7.7% of gross national income (GNI).

He added that minimal government spending will able to stimulate related sectors, such as airlines, airports, casinos and specific retailers.

Subsidy rationalisation is an extended theme from last year, Mak said. The gas subsidy reform will benefit the vertically integrated utility provider in Malaysia, which is Tenaga Nasional Bhd.

Meanwhile, Steve Clayton, chief executive officer and senior country officer for JPMorgan Malaysia, said the low interest rate environment today is prompting investors to look for higher yields.

“They find it very difficult to find yields from government bonds, from the bond market. So they want yield from their equity investments,” he said, adding that the market is now looking at the listing of Malakoff Corp, Malaysia’s largest independent power producer.

Mak believes Malakoff, which is en route to a listing on Bursa Malaysia’s Main Market on May 15, will serve as “some sort of measure on what the market reaction will be”. He foresees the number of initial public offerings (IPO) this year will be higher than in 2014. There were 15 IPOs on Bursa last year, with 12 for the Main Market and three for the ACE Market.

“I’m not saying 2015 will be a great year. But it will be better than 2014,” he said.

BioAlpha Holdings Bhd has emerged as Bursa’s first IPO this year. Beside Malakoff, another notable listing in the pipeline will be Sunway Construction Group, the construction arm of Sunway Bhd.

Mak also advised companies that have funding requirements to borrow while interest rates are low.

“We believe the US dollar (USD) and interest rates are going to go up. When they start going up, if you have borrowed, of course you will have to pay more. Also, it maybe a bit difficult to tap into the market. But at the moment, we think the USD and ringgit markets look very attractive for borrowing,” said Clayton.

“There is plenty of liquidity and investors are willing to buy a paper locally and outside Malaysia as well,” he observed, adding that concession holders of infrastructure projects are expected to tap into the local market for funding later this year.

JP Morgan Malaysia predicts the ringgit will fall to 3.82 against the USD by end-2015 as the dollar continues to strengthen amid a potential rate hike by US Federal Reserve.

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