PETALING JAYA: Kenanga Research expects investor sentiment on Bursa Malaysia to remain positive in the fourth quarter while foreign investors’ universe of stocks may evolve away from traditional sectors like banks into mid cap names on the back of the strong ringgit and economic fundamentals.
The research house, in its latest market strategy report, kept its end-2024 target for the FBM KLCI of 1,760 points, on the belief foreign fund inflows would persist on confidence boosting newsflow such as the setting up of the special financial zone in Forest City recently and the proposed Johor-Singapore Special Economic Zone.
It, however, cautioned the inflows could turn negative in the near term as foreign investors eye Chinese equities following the stimulus packages announced recently by Beijing to support the economy in achieving its growth target of 5% in 2024.
“We are monitoring for sectors that would benefit from the China domestic demand such as commodities and building materials sector, petrochemicals and oil and gas, although the first order of risk to the market in the near term to a larger extent is the reversals out from Asean in general,” Kenanga Research stated.
It expects October, which will see Budget 2025 being announced, to be a relatively slow trading month but “risk on” interest to pick up in November following the outcome of the US presidential election, helped further by the increased liquidity seen towards year-end positioning by funds.“In October, investing in the larger caps and blue-chip counters should continue to provide an enduring play.
“Case in point, the FBM KLCI has outperformed both the FBM100 and the FBM small cap index since the early August sell-down and have performed by 3%, 1% and -7%, respectively,” Kenanga Research added.
While its top picks are anchored by blue chip names like RHB Bank Bhd, Public Bank Bhd
, Tenaga Nasional Bhd (TNB), Gamuda Bhd and IHH Healthcare Bhd, the research house believes investors’ interest could turn to technology, telecommunications, construction and property sector companies due to their appealing valuations.
It expects the technology and telcommunications sector stocks to attract investor interest in the final quarter as work on the new data centres under construction go into the fit out stage and Putrajaya unveils the official 5G dual network policy directive and resolve the valuation overhang of the sector.
The research house named Gamuda and TNB as having a multi-year earnings moat from the data centre thematic and benefit tech names like Nationgate Holdings Bhd, PIE Industrial Bhd and Inari Amertron Bhd.
Another sector that has been oversold recently and offers value is the oil and gas sector, more so as Kenanga Research expects a pick-up in sector fundamentals following the easing in monetary policies in many parts of the world.
“We believe the upstream services have commanded charter rates that are still resilient and growing due to good demand.
“We posit that should this trend prove sustained, it could be a budding thematic play for investors to consider ship builders as well,” Kenanga Research pointed out.
While impending higher wages for civil servants could be a boon for the underperforming consumer sector, the positives from a stronger ringgit, however, are neutralised by the uncertainty about the removal of subsidies for RON95 fuel.
Hence, Kenanga Research preferred to seek exposure to the consumer sector via banks at this juncture.
“All said, we think the case for owning Malaysian equities is still compelling with the yield for buyers of FBM KLCI today (after stripping off 10-year bond yields) at 2.8%, versus a long-term average of 2.4%,” it said.
