STRONGER RINGGIT TO PROMPT INFLOWS
Investors likely to pour funds into stocks of banks and telcos in the near term, says JP Morgan
THE strengthening ringgit may prompt higher fund inflows into stocks of Malaysian banks and telecommunications sectors in the near term, said analysts.
This was expected to push the FTSE Bursa Malaysia KLCI (FBM KLCI) higher as the two sectors had a combined market capitalisation of RM744 billion and made up 44 per cent of the index, they said.
Global research house JP Morgan said although it was underweight on the country’s banking and telecommunications sectors, it believed investors would reevaluate their positioning with regards to near-term risk rewards.
“Against the backdrop of light foreign client positioning and bearish sentiment last year, the Malaysian equity market in the near term may be supported by moderation of US dollar strength and trade frictions.
“Short-term portfolio inflows on the back of stronger ringgit might find their way back into these two large and liquid sectors (banks and telcos),” it said in a note recently.
JP Morgan said the funding source would potentially come from exporters which stand to lose out from a stronger ringgit, including rubber product manufacturers, technology firms and petrochemical players, which had mostly outperformed the FBM KLCI over the last 12 months.
The research house said its recent upgrade of RHB Bank Bhd from “neutral” to “overweight”, adding to its “overweight” on AMMB Holdings Bhd, provided bottom up exposure to turnaround or merger and acquisition drivers.
“Our Asean analyst’s recent upgrade of Axiata Bhd on earnings’ turnaround also provided investors with a bottom up exposure on the telco sector.”
Malaysian Association of Technical Analysts adviser Nazarry Rosli said a stronger ringgit would prompt investors to buy more shares in the local stock market to get better returns.
“In terms of selection, investors will pick sectors with higher potential returns and, hence, the banking and telco sectors. This will provide an impetus for the key index to go higher,” he told NST Business.
JP Morgan said other sectors that would benefit from a stronger ringgit included consumer companies with fast-moving goods and high import content as well as airlines.
For the AirAsia Group, the research firm said every one per cent appreciation in the ringgit would lead to a 12 per cent increase in earnings, which included both operational and translational impact.