Analysts continue to view banks positively
KUCHING: The banking sector continues to be viewed positively by analysts as a sound proxy of the impending economic recovery as business and spending outlook normalises with the rolling out of vaccination efforts.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) recalled that from 2019 to 2020, institutional investors had been accumulating stocks in the financial services industry and added RM8.7 billion worth to their portfolios, albeit some hiccups were seen during the Covid-19 induced Movement Control Order (MCO).
“However, recent findings from Dibots pointed out that the same basket of stocks was being de-institutionalised with year to date (YTD) net selling of RM1.4 billion,” Kenanga Research said.
The research arm suspected that funds could be closing some favourable positions made during the fourth quarter of current year 2020 (4QCY20).
“It could also be argued that this is spurred by the softening confidence in economic recovery due to the MCO 2.0 from midJanuary 2021, driving the need to de-leverage from the sector.
“On the flipside, we gather that foreign investors have constantly been net sellers which was truly market-wide at the height of the US-China trade tensions during the Trump Presidency and added by uncertainties in the domestic political climate.”
According to Kenanga Research, these recent trends could have led to the rise in beta levels for the banking stocks within its coverage.
“The highest amongst them would be Public Bank Bhd but this could be viewed with some discretion as it saw high trading volatility from its 4:1 bonus issue.
“That said, we do not think that this should be a cause for concern for the sector.”
In spite of these indicators, Kenanga Research highlighted that the banking sector has been relatively stable YTD.
“Both price and valuation levels have remained somewhat flattish, suggesting that investors’ support are still mostly intact.
To offer a brighter perspective, the deleveraging of institutions within the sector could allow for stronger upward bias price momentum if funds were to reposition.”
The research arm further highlighted that the higher retail investor mix currently is also great for liquidity to spur further participation into the sector.
“We continue to view the sector positively as a sound proxy of the impending economic recovery as business and spending outlook normalises with the rolling out of vaccination efforts.
“Our in-house view for 2021 gross domestic product (GDP) growth of 6.5 per cent is in line with Bank Negara Malaysia’s (BNM) forecast of six to 7.5 per cent.”
Even if loans and net interest income growths remain tepid and vaccination progress is slower-than-expected, Kenanga Research believed banks could continue to yield earnings growth having implemented leaner cost structures amidst the tight operating environments during the height of the MCO.
“Plus, with most impairments being frontloaded in 4QCY20, we anticipate any further provisioning during CY21 to be milder.”