Nomura: 2.8pc target achievable on higher oil price

KUALA LUMPUR: Nomura Securities Malaysia Sdn Bhd expects oil price to hover b etween US$65 to US$68 (RM260 to RM272) per barrel by the end of this year, which will benefit Malaysia’s efforts to narrow its fiscal deficit.

“We expect the government to meet their 2.8 per cent (fiscal deficit) target helped by the fact that its budget assumption is very conservative,” said its Southeast Asia chief economist Brian Tan.

The 2018 Budget had forecast oil price at US$52 per barrel. With oil price on the rise (currently US$68 per barrel), this would mean more revenue for the government.

Tan cautioned, however, that with every US$10 dollar rise in oil price, Malaysia would also see an increase of 0.8 per cent in consumer price index (CPI).

“Consumer spending has been plagued by the Goods and Services Tax (GST) implementation in 2015.

“However, we are seeing several bottom-up indicators, especially in retail sales, car sales and consumer confidence, after almost three years of GST,” he added.

The research house is also certain that Bank Negara will be hiking the Overnight Policy Rate (OPR) by 25 basis points at its first policy meeting on January 26, in order to stabilise financial imbalances.

It also expects the gross domestic product growth to remain at 5.5 per cent this year in comparison with 5.8 per cent last year on the back of strong domestic demand, as a result of stronger exports.

Meanwhile, Nomura Malaysia head of equity research Tushar Mohata said there would be “no surprises” from the upcoming 14th General Election (GE14), with Barisan Nasional (BN) expected to retain its majority.

“We believe that BN is going to win in the GE14. We are more certain of this then we were back in 2013 for GE13,” he said.

“As such, we expect there will be a lot of buying of equities in the first half, and a lot of selling in the second half. Which is a typical pattern of any election year,” he added.

For this year, Nomura is overweight in eight sectors: aviation; gaming, hotels and leisure, consumer, chemicals, telecommunications, oil and gas, and financials.

“We recommend a stock-selective approach for Malaysian equities in 2018 with our favourites being CIMB Group Holdings, Public Bank Bhd and Tenaga Nasional Bhd, among others,” said Tushar.

Nomura’s FTSE Bursa Malaysia KLCI target is 1,860 for year ending December 31. Lidiana Rosli