Nomura upgrades three sectors to ‘bullish’

PETALING JAYA: Nomura Equity Research has upgraded Malaysia’s banking, construction and gaming sectors to “bullish”, saying that their earnings have bottomed out, while election risks have largely been factored into stocks.

In a strategy report on Malaysia, the research house said earnings revisions had turned positive for the country after a 14-month downtrend, with valuations at close to 3½-year lows.

This meant that the margin of safety had increased substantially for investors, it said.

It added that the political risk from the next general election had been increasingly priced in and investors were overlooking Malaysia in favour of the more popular markets of Indonesia, Thailand and the Philippines.

“After being bearish for the past nine months, we are turning positive on the banking, construction and gaming sectors, while keeping our bullish rating on the plantation sector,” it said.

Nomura said that judging by the huge year-to-date underperformance versus the market, it believed that these sectors were very underowned as well.

“After its notable outperformance for over a year, we are lowering our weighting for telcos sector to neutral, largely due to valuation,” it said.

Nomura said that in addition to earnings upgrades, it had also eliminated the political risk adjustment to its market risk premium assumption.

“After more than six months of discounting, most of the market risks associated with the 13th general election should have dissipated, in our view,” it added.

The research house also noted that as one of the most open economies in Asia, Malaysia’s economy remained vulnerable to external shocks.

“Yet its stock market has remained generally more defensive, with the lowest volatility among regional markets by far,” it said.