Thursday 28 Mar 2024
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KUALA LUMPUR (Sept 9): Hong Leong Investment Bank (HLIB) Research said the market can stomach the higher interest rates, seeing that the KLCI’s earnings yield spread to 10-year Malaysian Government Securities (MGS10) is still generous at +0.5 standard deviation above the five-year mean.

In an economics and strategy note on Friday (Sept 9), after Bank Negara Malaysia raised the overnight policy rate (OPR) by 25 basis points (bps) to 2.50%, HLIB said this was within the house's expectations.

The research house said sectorial winners from the OPR hike are banks, while losers are real estate investment trusts (REITs) and property.

HLIB said the banking sector (which it is "overweight" on) is a clear winner from an OPR upcycle, as net interest margins are expected to widen.

“Our banking analyst estimates that every 25 bps OPR hike would bump up the sector's NIM by 5 bps to 6 bps, and earnings forecasts by 4% to 5% (big gainers are Alliance Bank Malaysia Bhd and BIMB Holdings Bhd, while small gainers are Affin Bank Bhd and Public Bank Bhd).

“Sectors on the losing end are likely to be REITs (narrowed spread between divvy yields and MGS10) and property (our property analyst estimates that a 25/50/75 bps rate hike would increase monthly mortgage instalments by 3.2%/6.5%/9.9%).

 “Sectors that ride on US dollar strength, which we are positive on, include technology, oil and gas upstream exploration and production, and wood-based/furniture players.

“We maintain our KLCI target at 1,560 (15.6 times price-earnings on mid-calendar year 2023 earnings per share),” it said.

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