KUALA LUMPUR (Sept 17): Plantation stocks retreated in early trade on Thursday as a weaker outlook for the sector kept investors at bay.
Among the early losers were the index-linked KLK, Sime Darby, Genting Plantations and IOI Corporation as well as United Plantations.
Hong Leong IB Research has maintained its Underweight rating on the plantation sector and said there were 50% and 70-73% chances that a weak El Nino will occur in Sep-Nov and Nov-Feb respectively (and it could last until 1Q15).
In a note Wednesday, the research house however said only Sabah and the northern part of Sarawak may feel the impact between end-14 and mid-2015.
HLIB said while an El Nino episode will affect oil palm development and production, each episode was unique in the degree to which they influence rainfall patterns and agricultural production.
“While there is still possibility that an El Nino episode will likely develop by end-14, we believe this will unlikely bring palm oil prices significantly higher in the near term, given that the potential El Nino episode will likely be a weak one.
“More importantly, several other bearish factors (including high production for other competitive crops, falling crude oil prices and the absence of seasonal demand) will likely cap further near term significant upside of palm oil prices.
“Maintain Underweight,” it said.