Malaysian equities likely to be volatile in 2017, says Kenanga IB Research

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KUALA LUMPUR (Jan 4): Malaysian equities and the local market will likely be volatile this year, in view of the more aggressive rate hike decision in the U.S., said Kenanga IB Research, adding that the policy and direction of the Trump’s presidency could spark more uncertainties. 

In a strategy note today, the research house said coupled with the underlying weak tone in ringgit, investors have yet to see a strong reversal in foreign fund flows.

However, it said the General Election theme play could uphold the local equity market’s investment sentiment.

“As such, we reckon that 2017 could be another range-bound year with a year-end index target of 1,732, implying circa 6% upside from here,” said Kenanga IB Research.

“Despite the relatively uninspiring investment sentiment, we could potentially see pockets of investment/trading opportunities arising from the anticipated trends such as General Election (GE) Play, higher inflation, detariffication in Malaysian General Insurance Sector, as well as the rise of Dark-horses (owing to stronger Crude Oil and Crude Palm Oil prices),” the research house added.

Apart from the above-mentioned trends, Kenanga IB Research is also expecting some specific sectors/stocks to outperform, for instance, exporters (such as plastics packaging players and gloves manufacturers) should continue to do well on the expense of weaker ringgit.

The rising price trend in commodities will be another plus point for upstream plantation players and other commodities exporters, it said.

“For higher risk appetite traders, they may also consider stocks that underperformed severely in 2016 to position for any potential rebound, if and when market sentiment turns more positive, especially if the above-mentioned GE play materialise,” it added.

The research house said that the big ticket item sectors, i.e. auto and property; high import content sectors, and gaming industries are likely to see higher volatility in earnings in 2017.

Besides that, Kenanga IB Research said pressure in profit margins for construction players, F&B producers and airlines may be seen, despite their overweight calls on construction and aviation sectors.

Other overweight sectors are gloves, plastics packaging, and power utility, while underweight calls are the automotive and healthcare, the research house said.