Thailand
Malaysia: Cautious trading seen as market enters 2020
PETALING JAYA: The FBM KLCI is set to enter 2020 with high caution, amid concerns of domestic political uncertainty and poor policy implementation, according to UOB Kay Hian Malaysia Research.
This is coupled with an expected slowdown in domestic consumption, in response to inadequate pro-growth policy actions and a protracted US-China trade war.
In a strategy report yesterday, the research house is bracing for a more volatile year in 2020, with the FBM KLCI expected to bottom out in the first half of the year at the lower end of its theoretical trading range of 1,535 to 1,660 points, as the country’s risk premium rises on concerns tied to the power handover of the ruling government.
“We expect market risk premium to remain at elevated levels on mounting concerns over the power handover issue and, to a good extent, reflect the wide perception of the Pakatan Harapan government’s ineffectiveness in expediting growth-oriented policies and measures.
“Some business-unfriendly policies and ineffective implementation are perceived to have impeded domestic reinvestments and seen as a contributing factor behind the latest economic slowdown, ” said UOB Kay Hian.
Gross domestic product (GDP) growth for the third quarter of 2019 slowed to 4.4% from the second quarter’s 4.9% growth.
The FBM KLCI is expected to end 2020 firmer at 1,650 points as mega projects would have achieved some level of activation by then, and the street should have adequately priced in a scenario of protracted US-China trade tension.
UOB Kay Hian reckoned there is better visibility for large caps to deliver positive returns after four years of earnings doldrums, led by better earnings visibility in the plantation sector, following the spike in crude palm oil (CPO) prices and a stable banking sector, which, in the worst case scenario, will see one last policy rate cut.
“We advocate a strategy which embraces defensive stocks, which include high-quality dividend yielders, and promising growth sectors or companies that are mostly not dependent on government policy.
“2020 should favour a large or mid cap-centric strategy.
“Thematically, we continue to like the trade diversion and CPO price recovery, followed by niche alpha plays within e-government, oil and gas, strong global demand for floating production, storage and offloading and liquefied natural gas vessels, moderate rise in Petronas’ upstream capex, regional decommissioning, environmental, social and corporate governance and mega infrastructure, ” the research house said.
UOB KayHian noted that the stock market fundamentals are reasonably progressive stepping into 2020.
This is backed by high visibility for a moderate corporate earnings recovery after a four-year earnings lull, healthy current account and growing momentum of foreign direct investment formation that will help support the ringgit, as well as ample bankable investment themes such as trade diversion, despite the government lacking the will to expedite business-friendly policies or projects.
Source: https://www.thestar.com.my/business/business-news/2019/12/12/cautious-trading-seen-as-market-enters-2020#SrAOJZbgTS5lZmtC.99