Malaysia’s stock market kept at Overweight by Affin Hwang

Malaysia ringgit notesMalaysia ringgit notes

Any weakness in Malaysia’s stock market after the shock election outcome is likely to be only temporary, Affin Hwang said, sticking with an Overweight call.

“A negative impact on the market is likely over the near term but we expect market and ringgit weakness to be only temporary,” Affin Hwang said in a note dated Thursday. “Longer term, we remain positive as a stronger middle-income segment and having the right policies in place suggest that the economy will be on a better footing.”

It kept its Overweight call on the KLCI, with a year-end target of 1923. It also stuck with its forecast for the ringgit to appreciate, with the U.S. dollar to fetch just 3.80 ringgit by year-end. The index last traded at 1846.51 on Tuesday, while the U.S. dollar was fetching 3.9497 ringgit on Tuesday.

“While we acknowledge the possibility of short-term capital outflows because of policy uncertainties, we firmly believe the newly formed
government presents an opportunity as it is comprised of a group of senior ministers with strong credibility,” said Affin Hwang, which has a tie-up with Daiwa.

But it added that the consumer and construction sectors were likely to be the most affected by the change of leadership.

Affin Hwang upgraded both the consumer and auto segments to Overweight from Neutral to play on the consumer revival, particularly as the goods and services tax (GST) could be removed, but it cut construction to Neutral on uncertainty and delays as projects and contracts were likely to be reviewed.

For the consumer sector, “consumer sentiment was negatively impacted post GST and has only recently started to recover,” it noted, saying removing the GST could boost demand and consumption spending, particularly for big-ticked items, such as passenger vehicles. That could also benefit the banking sector as auto loans accounted for more than 10 percent of outstanding loans, it noted.

In the near term, Affin Hwang said there could be rotation into defensives, such as healthcare, which it rates at Overweight, and also high-yielding plays, such as Malaysian REITs, which it rates at Neutral.

It also tipped small- and mid-caps after the recent selldown, noting that as valuations turn more compelling, interest should return due to stronger growth prospects and as valuations are relatively more attractive. It said it liked Aeon Credit, Supermax and Aeon for the segment.

It removed Hong Leong Bank and Genting Malaysia from its top Buys and replaced them with Sime Darby, for automotive exposure, and Aeon, for consumer exposure. It upgraded Sime Darby to Buy from Hold.

The other stocks on its large-cap top Buy list were Maybank, Inari, Serba Dinamilk, Tenaga, Top Glove and IHH.