This article first appeared in The Edge Financial Daily, on June 30, 2016.
KUALA LUMPUR: The current period of a relative lull in the market is an opportune time for accumulation of undervalued stocks for the longer term, says PublicInvest Research.
Property, plantation and power sectors are the three sectors it is recommending to clients.
In its market strategy note yesterday, the research firm said that accumulation of undervalued stocks is recommended, especially if there are fresh bouts of weaknesses from foreign-led hot money outflows.
In the interim, PublicInvest believes there are also trading opportunities for some quick bucks. However, the research outfit noted that the choice of stocks should be those that are bigger-capitalised and liquid stocks.
“Our [FBM KLCI] year-end target is 1,720 points, and suggested stocks for the remainder of the year are Axiata Group Bhd, AMMB Holdings Bhd, Genting Plantations Bhd, SKP Resources Bhd, LBS Bina Group Bhd, Chin Hin Group Bhd, TDM Bhd, Uzma Bhd, Cypark Resources Bhd and Hock Seng Lee Bhd,” said PublicInvest.
Despite the gloominess that has enveloped the domestic property market, PublicInvest opines that it is time to hunt for bargains among the property stocks that have been hammered by concerns about the slowdown in property sales.
“Preference for the property sector is from a valuation standpoint, as we see some possible recoveries in activity towards the end of the second half of 2016 into 2017,” the strategy note wrote.
“The plantation sector is picked on the basis of [a] stronger earnings recovery next year amid still-high crude palm oil price expectations and returning fresh fruit bunch production growth, while we like the power sector for its defensive earnings qualities,” said PublicInvest.
PublicInvest’s top picks in the property sector are S P Setia Bhd, LBS Bina and IGB Corp Bhd, while for the plantation sector, its top picks are Ta Ann Holdings Bhd and TDM.
PublicInvest also suggests selective exposure to the oil and gas (O&G) and banking sectors as it sees valuations of some counters increasingly attractive at current levels.
PublicInvest’s top picks for the O&G sector are Uzma, Wah Seong Corp Bhd and SapuraKencana Petroleum Bhd, while for banking, its top pick is AMMB Holdings.
“We remain less enthused over export-related counters given our expectation of a stronger ringgit in the longer term,” said the research outfit.
It expects the ringgit to average around RM4.10 to RM4.20 against the US dollar for the entire 2016, as it remains in a state of flux in the near term.
At present, PublicInvest said, there are no specific push factors to drive market participants out in droves, neither are there pull factors to entice investing interest in a big way at this juncture, hence the market is drifting sideways with a downward bias.
“Foreign investors have been net sellers in the market over the last 12 months. In fact, the gradual outflow started as far back as mid-2013, of which a net amount of RM40.3 billion has exited the local bourse since then,” said PublicInvest.
The firm said the government’s revision of its budgetary numbers early this year to reflect a crude oil price assumption of US$30 to US$35 per barrel (from US$48 previously) augurs well for the country’s finances considering the year-to-date average of US$42.59 per barrel.
However, PublicInvest cautioned that Malaysia’s export numbers are showing that we are starting to sell less unit-wise, potentially putting trade surpluses at risk and plunging the country into a twin deficit situation, especially if Brexit-related uncertainties become a significant drag on global trade.