Friday 29 Mar 2024
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KUALA LUMPUR (Mar 4): The Malaysian equity market should remain attractive as long as its net equity return is at least 5%, and if the ringgit continues to be undervalued by 5%, said M&A Securities.

In its Malaysia Equity Strategy: March 2015 Outlook report today, the firm said there remained quite a number of stress points after Greece had been temporarily put aside; top of the list is the US Federal Funds Reserve policy strategy.

"We are more worried of the timing of the adjustment rather than the quantum of the adjustment," the firm said, adding that the Federal funds rate will eventually reach over 4 percentage points or at least 400 basis points higher than it is currently.

"Unless and until that is settled, the mother of volatility in global equity market will persist," the firm said.

Apart from the Federal Reserve policy strategy, it notes that the movement of oil will influence the trading mood and risk tolerance among investors.

“This will supersede all other fundamentals that come into play. As for oil, its trajectory, albeit in narrow range in the last 1 month, failed to lift our spirits as we think that global oil price will continue to suffer protracted softness in the foreseeable future, more pressingly once the US is certain on its next policy tightening,” it noted.

The consolation for the local equity market is that foreign investors have returned, it said.

Their reappearance is driven by the attractiveness of a cheaper ringgit, which is undervalued by about 5%-10%, and the less demanding risk premium of only 3.2% locally, vis-a-vis regionally, it added.

Indeed, with the risk premium being the third lowest in the region now, it believes the local market “will be thriving again”.

However, it sees investors as being picky in their stock selection.

"Only those with lean balance sheet, solid order book, not in commodity-related stock, and attractive valuation will be selected. We believe the local market have ample economies of scale of such traits," the firm said.

The firm has selected Berjaya Auto Bhd (target price: RM3.92), MBM Resources Bhd (target price: RM3.80), Digi.com Bhd (target price: RM7.20), Malayan Banking Bhd (Maybank) (target price: RM10.70) and Gamuda Bhd (target price: RM5.87) as its top five ‘buy’ counters in March.

 

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