Malaysian markets to brace for consolidation on Fed rate hikes from March: UOBKH

UOB Kay Hian (UOBKH) expects market consolidation for Malaysia from March onwards to reflect the projected interest rate hikes, it said in a research report on Friday (Feb 18).

The research team projects that the US Federal Reserve will raise its policy rate 5 times in 2022 to a total of 150 basis points (bp). It believes March 2022 will see a 50 bp rate hike.

Following the increase in US interest rates, UOBKH also anticipates Bank Negara Malaysia to raise the overnight policy rate 2 times, each by 25 bp in the second and third quarter of 2022. It sees potential for Malaysian markets to factor in concerns of the Fed deleveraging its balance sheet as well.

However, UOBKH still expects selective reopening plays and growth stocks to deliver positive returns amid the consolidation.

The research team highlights that there are event-related opportunities during this consolidation period.

As equity market volatility and risk premiums suggest moderate consolidation, UOBKH does not expect the market to price in a high probability of stagflation or recession. It therefore projects the market to react favourably to notable events in 2022 such as the opening of borders, which will benefit tourism-related companies.

UOBKH maintains its end-2022 target for the Malaysian stock market index, FTSE Bursa Malaysia Kuala Lumpur Composite Index, at 1,635. The target is based on an expected 16.2 times the price-to-earnings ratio for 2022.

The research team noted its top picks which include Astro Malaysia, CIMB Group and Genting Malaysia. UOBKH foresees potential for “meaningful near-term outperformance for the earnings supercycle and back-loaded dividend beneficiaries”, it said.