Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on February 22, 2018

KUALA LUMPUR: The MSCI Malaysia Index, which has climbed 9% since early last December, should continue to outperform in the near term, but the upward trend is expected to lose steam after the 14th general election (GE14), said Morgan Stanley Research.

For stock selection, Morgan Stanley is positive on Malayan Banking Bhd, IHH Healthcare Bhd, Axiata Group Bhd and AirAsia Bhd. It is less constructive on Tenaga Nasional Bhd.

For its model portfolio, it mainly likes banks for its improving corporate loan growth, and telecommunications while avoiding utilities.

In its Asean equity strategy report, Morgan Stanley's equity strategist Sean Gardiner and equity analyst Aarti Shah said despite the 490 basis points of outperformance year to date compared with Asia ex-Japan  (AxJ), it is not too late to benefit from potential pre-election stock market performance, and tailwinds from a higher crude oil price.

The MSCI Malaysia has indeed exceeded Morgan Stanley's target 632 points. It hit more than a three-year high of 651.61 points on Jan 29. The index closed at 643.14 points yesterday.

Morgan Stanley pointed out that historically, MSCI Malaysia has outperformed AxJ by 410 basis points running into elections, noting that August is the constitutional deadline for the general election.

Banks are also starting to see improving credit demand from corporates supported by a robust 5% gross domestic product growth, it added.

Morgan Stanley sees that higher oil prices present some inflation risk but interest rates were pre-emptively raised in January.

It also noted that higher oil prices provide a bigger benefit to government revenue collection.

The government has set its budget at US$52 per barrel and every US$1 (RM3.91) per barrel move in oil prices has a RM300 million impact on revenues, according to the ministry of finance.

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