Thursday 28 Mar 2024
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KUALA LUMPUR (Jan 20): Maybank Kim Eng has a positive view on the Malaysian equity market conditions in 2021, on the back of sustained stimulus measures — both fiscal and monetary.

“If we put aside the politics and temporary lockdowns, the underlying fundamentals for equity markets remain quite good,” said Maybank Kim Eng head of regional equity research Anand Pathmakanthan, in a webinar session today, titled "Market Outlook 2021: Steering through Volatility". 

He noted that there is a very good case for fund managers to reallocate their money into the Malaysian equity market, out from the fixed income or Malaysian debt market; fund managers have been seen to prefer putting their money into fixed income in the last two years.

Pathmakanthan reiterated the research firm’s forecast for the FBM KLCI to end the year at 1,830 points, which represents a 13.7% upside from the current level at 1,609.58 points, as at 4.25pm today.

“This year is all about earnings recovery. Our analysts are looking at broad earnings recovery, pretty much in most sectors,” he noted.

While political sustainability will always be a risk, Pathmakanthan said the market has now become quite immune, in the sense that the market does not react to headlines on politics as much as it used to.

But, the question on how long the lockdown will last will also be a key risk as it has a very tangible impact on earnings expectations, as well as cash flow expectations, he said.

One other risk Pathmakanthan mentioned is the fiscal situation in Malaysia, which he says is very stressed.

“There is always risk that the government may come back to the corporate sector for money to bridge their fiscal gap,” he added, saying that certain sectors are more susceptible to this.

For one, windfall taxes will always be an issue for glove makers that are making huge profits at this point, while corporate social responsibilities for the government-linked companies (GLCs) — such as Tenaga Nasional Bhd and Telekom Malaysia Bhd — could disturb their respective earnings recovery expectations.

Banking sector still safe

“I think banks are safe,” said Pathmakanthan, noting that no worries are needed about the fundamentals of the banks.

He said the banks have no balance sheet issue, as they have not only built up a “very strong” capital base, but they are also not short of liquidity.

“So far the news for the banking sector has been still quite good,” he said.

Citing the latest data from November, he noted that the gross impaired loans for the banking system is 1.5%, compared with the Bank Negara Malaysia’s (BNM) stress test, which was 3% by the end of 2020.

Thus, this means that impaired loans are tracking well below BNM's expectations.

The issue, however, is the growth potential, said Pathmakanthan. “The loan growth is still very low, and we don’t see a big recovery this year. We think 3% plus is the best the banks can do,” he said.

In terms of moratorium, Pathmakanthan said it is a relief that there is no extension of a blanket moratorium, which would have been “quite damaging” for the banking sector.

“I would only be cautious if a blanket moratorium came back and that would affect our view on the banks,” he added.

Edited BySurin Murugiah
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