PETALING JAYA: With cautious optimism being the theme for Malaysia, market observers have made predictions on sectors to look out for this year.
Broadly speaking, analysts have identified banking as one of the sectors that would continue to outperform in a high rates environment as Bank Negara is expected to raise its Overnight Policy Rate at least one more time before July.
However, another industry that has caught the attention of some pundits is the technology sector, particularly as China presses ahead with its reopening after discarding its zero-Covid policy last month.
Kenanga Investment Research’s Clement Chua is maintaining an optimistic view on the banking sector, although there are uncertainties could still weigh on the long-term prospects.
On the flipside, Chua noted that it is likely that the banks would not be badly affected due to their diversified exposures and constant stress testing being conducted to strengthen preparedness.
“In the medium term, should macros not pan out to be worse-than-expected, we should see strong earnings uplift sector-wide of more than 20% growth in earnings per share coming from the relaxation of provisioning requirements with possible writebacks to bolster earnings further,” he pointed out.
Chua did not expect the central bank to go for another OPR hike as it would further test the tolerance of the financial system, adding that this could mean lower net interest incomes for lenders as loans become more costly.
Chan Jit Hoong of Hong Leong Investment Bank (HLIB) Research is adopting a prudent outlook on the banking sector, holding on to his “neutral” call, as the sector has a balanced risk-reward profile.
“Tailwinds which were supposed to be enjoyed by banks, such as big net interest margin expansion and strong credit growth over 2022 and 2023 have instead been frontloaded to last year, making the next 12 months less exciting.
“Furthermore, banks may now have to grapple with possibly steeper cost of funds, smaller non-interest incomes, and loan growth,” he said.
He added that undemanding sector valuations and decent dividend yield of 5% are factors that would provide downside support to share prices.
On the local technology sector, Rakuten Trade Sdn Bhd head of equity sales Vincent Lau said companies in the non-consumer equipment manufacturing services or EMS sector such as Nationgate Holdings Bhd
and Aurelius Technologies Bhd have shown encouraging performances last year and should carry the momentum into 2023, along with the automated test equipment sub-sector.
ECA Integrated Solution Bhd, which is into automation solutions, is also expected to perform positively.
“Prospects are also looking bright for the electric vehicle (EV) sub-sector as we can see an increasing volume of electric cars in Malaysia, and sales over the past couple of years had also been on the uptrend,” he told StarBiz.At the same time, he acknowledged that the lack of charging stations remained the primary challenge, but emphasised that the issue is being tackled by many stakeholders in the EV sphere including utility firms, car makers and housing developers.
Lau is not unduly worried about the possibility of a global recession, as the recent US labour numbers are strong, coupled with the reopening of China which is a “plus-point” for tech players worldwide.
“Of course there has recently been tech-related trade tensions between the United States and China, but this would mean that Malaysia could be a beneficiary. The US-imposed sanctions would mean China and other countries could be looking at alternative locations to build tech hubs, and we are one of the destinations they look at.”
Aside from Asia, he is also of the opinion that Europe and the United States may undergo a possible mild recession or avert it.
Commenting on the Russia-Ukraine conflict, Lau said: “Putin has, on a number of occasions, indicated that he is willing to come to the negotiation table to bring an end to the conflict, so in some ways, it is down to how Ukraine would respond.”
On investment prospects within the tech industry, Lau said the fact that the sector is a sunrise means that tech companies are noted for their growth prospects compared with their ability to pay dividends.
The initial public offering (IPO) scene especially pertaining to the tech sector, is looking buoyant with the listing of ACE Market-bound companies such as Oppstar Bhd.
“We believe investors into technology are mostly going to be looking for capital appreciation. The IPO scene is also compelling with these high-potential companies entering the fray,” he said.
In January, the FBM KLCI had seven IPOs with one Main Board listing, and six listings on the ACE Market. Bursa Malaysia oversaw 35 new listings in 2022 and is targeting for 39 new companies to join the exchange this year.
