Rising optimism but beware Trexit risk, says RHB Research

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KUALA LUMPUR (May 22): RHB Research Institute Sdn Bhd said it remains positive on the outlook for Malaysian equities on the back of the rosier outlook for global growth led by stronger growth in the US coupled with the pick-up in domestic growth and recovery in corporate earnings.

In a strategy note today, the research house said the 1Q17 gross domestic product growth of 5.6% comprehensively beat market expectations, leading RHB Research to lift 2017 and 2018 forecasts to 4.8% and 5% respectively (from 4.5% and 4.7%).

RHB Research said improving investor risk appetite for emerging market equities would continue to attract higher foreign institutional participation.

"We expect the Trump Administration to at least partially deliver on its reflationary policies.

"Key investment themes include a preference for cyclical sectors, exporters, large cap beneficiaries of rising foreign participation, high growth small- and mid-cap stocks, election plays and high dividend yield stocks.

"We lift our end-2017 FBM KLCI target to 1,835 points after ascribing a higher 16.5x P/E to forward earnings," it said.

"Overweight sectors include banks, oil & gas, healthcare, construction, aviation, basic materials, tech and logistics.

"We remain Underweight on plantations. Top Picks: Press Metal Bhd, Aeon Co (M) Bhd, Serba Dinamik Holdings Bhd, Malayan Banking Bhd, Inari Amertron Bhd, Malaysian Pacific Industries Bhd and Gadang Holdings Bhd," it said.