Analysts: Equities to be in rangebound trading in second quarter

KOTA KINABALU: Analysts at AmBank Group (AmBank Research) believed that Malaysian equities will be in range-bound trading, benefitting from healthy domestic macro fundamentals, stronger global growth and trade, positive regional outlook, and ringgit appreciation.

The research firm in its second quarter 2018 (2Q2018) Asset Allocation View note yesterday believed potential catalysts for the FBM KLCI included strongerthan-expected corporate earnings and strong foreign funds inflow.

“The market attracted a net inflow of foreign funds amounting to RM2.9 billion year to date. But we must acknowledge that headwinds from domestic and externally will create volatility,” it said yesterday. “Cyclical stocks, strong earnings and small- and mid-cap play will be in the limelight.”

AmBank Research further opined that Malaysia’s inflation was poised to stay moderate in 2018 at around two to 2.5 per cent, partly due to a stronger Malaysian ringgit against the US dollar, which would partly cushion the firmer global energy and commodity prices as well as import costs.

Besides, the high base would lead to lower inflation contribution in 2018. Core inflation is projected to moderate due to limited passthrough to retail prices.

“For Malaysia, while the base case remains with one rate hike in total for 2018, which materialised in January by 25bps, we have placed a low 30 per cent chance of a second rate hike in September or November, with much depending on the pace at which demand-pull inflation kicks in and the number of rate hikes by the US Fed,” it added.

“We are cautious on Malaysian MGS though the yields held up well in a tightening policy rate environment and amidst uncertainties.

“It could be due to solid economic fundamentals, strong reserves, current account surplus, improving fiscal conditions and a strong ringgit which strengthen the risk appetite for ringgit-denominated bonds among investors who supported fund flows into the local bond market.”

To note, overall net inflows into the MGS and GII were RM184.8 billion with total foreign holdings of both MGS and GII at 45.62 and 6.68 per cent respectively in March.

Meanwhile, AmBank Research recognised the risk of reversal by the foreign investors although we believe a huge chunk of the foreign flows is from real money investors like pension funds, sovereign wealth funds and asset management companies who hold for a longer-term in their investment horizons and are more sticky.