Further downside risk seen with slow 2H17 GDP, says Affin Hwang Capital

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KUALA LUMPUR (Sept 6): There is further downside risk to Malaysian equities as the country's gross domestic product (GDP) is expected to slow in the second half of this year (2H17), according to Affin Hwang Capital Research.

In a stratergy note today, the research house said the second quarter (2Q17) corporate earnings season was disappointing, with the number of misses increasing to 44% of its coverage, it said, adding that this was largely driven by disappointment from small and mid-capitalisation companies.

Further downside risks include a decline in commodity prices, further disappointment in corporate earnings, failing to meet national fiscal consolidation plans, and capital outflow from accelerated monetary policy tightening in US and Europe, Affin Hwang said.

However, it projected that there are sufficient drivers to ensure that its lowered corporate earnings growth estimates of 2.7% and 6.8% for 2017 and 2018 respectively could be met.

“We think that banking earnings spurred by construction and infrastructure projects, steady commodity prices and low unemployment rates will help sustain corporate earnings in 2H17,” Affin Hwang said.

The research house maintained its overweight stance on the FBM KLCI with an end-year target of 1,813 points.

It downgraded three sectors, namely rubber products, property and healthcare, to neutral due to their price outperformance and large number of hold ratings.