KUALA LUMPUR (Feb 4): The market is expected to be range-bound in February and bargain hunting will occur after the recent corrections, according to CGS-CIMB Research.
Investors are likely to remain cautious amid fears that government measures to curb the rising cost of living could lead to weaker profit margins for companies, the research house said.
The KLCI fell 3.5% in January from the previous month due to concerns over earnings risks, rising global interest rates, environmental, social and governance issues, and political factors.
The research house added that institutional investors became the largest net sellers of RM663 million worth of equities in January 2022, down from being the largest net buyers of RM958 million worth of equities in December 2021.
Foreign investors were the largest net buyers of shares worth RM332 million in January, after being net sellers of RM1.1 billion in the previous month. Retail investors continued to be net buyers, but their net purchases declined 73% month-on-month to RM87.3 million in January.
“Analysing KLCI's historical data, we note that the KLCI's performance tends to be mixed in February, with an average m-o-m +0.7%/+2.2% over the past 10 years/44 years,” CGS-CIMB Research said in a strategy note on Thursday (Feb 3).
According to CGS-CIMB Research, investors' attention in February will be on:
*Economy — Investors will focus on the release of Malaysia's 4Q21 gross domestic product on Feb 11. Monetary policy decisions by the Bank of England and the European Central Bank are also likely to be closely watched. The 26th ministerial meeting of the Organisation of the Petroleum Exporting Countries (OPEC) and the non-OPEC on March 2 is also likely to attract interest.
*Corporate — 4Q21 results will be the focus of investor interest. Investors will be watching the potential impact of floods, higher electricity tariffs, the imposition of price caps on certain commodities, rising operating costs, and the cukai makmur (wealth tax) on corporate profits. Investors will also track progress on the admission of new foreign workers, which has been postponed from January. Other topics include new Covid-19 cases, the opening of the Genting SkyWorlds theme park on Feb 8, the government's plans to reopen international borders and the response to Malaysian companies that have been issued withhold release orders by the US Customs and Border Protection (US CBP) in recent months. From Feb 28 to March 24, Malaysia will hold a parliamentary session during which a number of important bills (anti-hopping bill, prime ministerial term limits) could be introduced and passed.
*Global — Investors will also be keeping an eye on the global Covid-19 situation and how the Omicron variation will impact plans to reopen the borders. As for global inflation, US 10-year bond yields and geopolitical risks will also be in focus. Investors will follow the results of the MSCI Quarterly Index Review for the MSCI equity indexes, which will be released on Feb 9.
*Politics — Investors will be monitoring the Johor state election results.
“The market may not have fully priced in the electricity tariff surcharge of 3.7 sen per kilowatt hour for non-domestic users for the February to June 2022 period.
“The other concerns would be political risks and interest rate hikes by the US Federal Reserve as early as March,” said CGS-CIMB Research.
CGS-CIMB Research reiterated its KLCI end-2022 target of 1,612 points and named its top three picks: Hong Leong Bank Bhd ('add' call with a target price [TP] of RM20.56), QL Resources Bhd ('add'; TP RM4.95) and Inari Amertron Bhd ('add', TP RM5.50).
At the time of writing on Friday, FBM KLCI stood at 1,520.55.
Hong Leong Bank shares rose four sen to RM19.56 for a market value of RM42.4 billion; QL Resources rose one sen to RM4.85, giving it a market capitalisation of RM11.79 billion; Inari Amertron was unchanged at RM3.27, giving the group a market capitalisation of RM12.1 billion.