Friday 29 Mar 2024
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KUALA LUMPUR: Malaysian stocks could be in for further volatility as analysts expect the second quarter (2Q) — which started on April 1 — to be the worst quarter of the year due to the overall negative sentiment and macroeconomic factors weighing on investors’ minds.

Inter-Pacific Securities head of research Pong Teng Siew said 2Q is shaping up to be a volatile period, with weak earnings growth seen.

He said valuations were stretched and it would be difficult for the FBM KLCI to push higher, as it would be dragged by heavyweight sectors.

“The main one is the finance sector, which is facing growth constraints from the central bank’s tighter lending standards, meaning that total asset growth would be strained. At the same time, the oil and gas (O&G) and plantation sectors are facing weak commodity prices, although that is a cyclical issue,” he said.

“The consumer sector is also one that is facing uncertainty due to the goods and services tax (GST) and its impact on spending,” he added. 

Pong said the technology sector would be the clear winner to drive KLCI growth, as it would gain from the weaker ringgit.

Other than that, Pong also favours the manufacturing sector, adding that export-oriented manufacturers such as glove makers are better positioned to benefit from the weaker ringgit.

Areca Capital Sdn Bhd chief executive officer Danny Wong told The Edge Financial Daily that a number of issues remain unresolved, which add to the negative investor sentiment.

“There are things such as the potential downgrade in our sovereign rating by Fitch Ratings and [mounting debt of] 1Malaysia Development Bhd, the outcome of which is unknown. At the same time, the GST has been implemented, which would definitely impact consumer spending,” Wong said. 

“Although the tax is one that has a positive long-term effect, the situation of consumers cutting back on their spending for now is one that cannot be avoided. As such, some corporate [earnings] could be softer, for example, the consumer sector,” he added.

On Wednesday, The Edge Financial Daily reported economists as saying it will probably take two quarters for households to adjust to the increase in prices, with an estimated private consumption spending growth of between 6% and 6.5% — compared with 7.1% last year.

When asked which sectors he thinks are likely to perform positively in the coming quarter, Wong said he likes the healthcare, telecommunications, banking and construction sectors.

“Healthcare is always a necessity. I also like defensive stocks and those that have a high dividend yield. To a certain extent, the banking sector is starting to see the return of foreign funds to the region.

“Construction, of course, would benefit from the ongoing infrastructure projects here, and sectors that export a bulk of their products — such as the electrical and electronic goods producers and furniture makers — would benefit greatly from the strengthening US dollar,” he said. 

M&A Securities Research said it also remains to be seen which direction the US Federal Reserve will take in terms of its policy adjustments. Until clarity is gained, “conjecturing and speculative activities would take centre stage”.

“In summary, we continue to think that 2015 will be a year full of shifting sands and uncertainty. Notwithstanding that, we think that the market will be calmer in the second half year (2H15) as the prospect of the United States adjusting its policy rate will be fully priced in by then, making investing decisions easier, accurate and predictable,” it said in a note yesterday.

M&A’s KLCI target for the end of 1H15 is 1,840 points, pegged at a price-to-earnings ratio of 16 times, with an “overweight” call on the auto, construction, rubber glove and telco sectors in 2Q. 

Meanwhile, Maybank Investment Bank Research said it would continue to advocate a defensive strategy in 2Q and has an “overweight” call on the power, construction, O&G, glove, port and technology sectors.

Its year-end KLCI forecast remains at 1,830 points.

In 1Q, the KLCI rose 3.95% to close at 1,830.78 points on Tuesday.

The local bourse saw active trade among the export-oriented players, namely the furniture makers and technology-related counters.

 

This article first appeared in The Edge Financial Daily, on April 3, 2015.

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