While Asian equity markets may remain soft after the surprise of Donald Trump’s win in the US presidential election, we look forward to buying opportunities. Essentially, we do not expect significant economic repercussions on Malaysia’s economy or corporate earnings, save for the indirect impact on downward biases for the ringgit vs the US dollar and on interest rates. We highlight the trough prices of our conviction picks, as well as some buying opportunities.
WHAT’S NEW
• Near-term confidence pricked. Asian equity markets have swooned on knee-jerk reactions to Trump’s surprise win; the FBMKLCI eased 1%. Despite the major turnaround in US equities after Trump’s acceptance speech which promoted national unity and stressed on fiscal stimulus (the DJI futures initially fell by as much as 800 pts before the cash DJI remarkably recovered to positive territory), investment sentiment in Asia may remain damp and to be swayed by Trump’s anti-globalisation rhetoric. Nevertheless, we do not expect the situation to deteriorate into a major black swan event. Hence, the FBMKLCI’s potential downside would continue to be mild.
• Modest economic ramifications. We reckon there would be plenty of legislative check-and-balances (including internal fractions in the Republican party) that would moderate some of Trump’s drastic and outwardly anti-globalisation stances. For now, we factor in the indirect effects of downside biases on the ringgit and on Malaysia’s benchmark interest rate, consistent with our economic team’s assessment (refer to RHS for economics projections). Such a scenario benefits exporters and high-yielders (eg REITs).
• Scouting for buying opportunities. We provide suggested entry prices for our key recommended stocks, separately based on our analysts’ fundamental valuation assessments as well as our technical chartists’ assessment.
ACTION
• We maintain our end-16 FBMKLCI target at 1,700, which implies 16.6x 2017F PE, or +1.3 SD to the historical mean of 14.7x. Factoring in a general election by mid-17, we continue to expect the FBMKLCI to firm up by the year end.
• Focus list: Alpha and selected top picks. Our top alpha picks continue to include Ekovest (see RHS table), Genting Malaysia , Inari , Kim Loong , Scientex and Tenaga . Among these picks, we note that Scientex has retraced materially from its recent high. Apart from alpha picks, we also identify Ann Joo, Genting Bhd and VS Industry as probable rebound candidates with near-term event catalysts.
• Our top picks are BIMB Holdings, Gamuda and Tenaga for large-caps, and, Ann Joo, Ekovest, Hume Industries, Inari, Kim Loong, MRCB-Quill REIT and VS Industry for small-mid caps.
source: UOBKayHian – 10/11/16
