Stable policies:
Upcoming GE may have an impact on outlook of stock market in the short term
Citibank Bhd investment strategists David Chua and Haren Shah at the briefing on the possible scenarios post general election in Kuala Lumpur.
KUALA LUMPUR: Existing policies that have been driving the country’s economy forward, deemed the pillars of the country’s fundamentals, would lend support to the Malaysian stock market post-general election (GE), said Citibank Bhd’s investment strategist.
The bank’s research head and investment strategist David Chua said there would not be major changes in policy, as the plans that were in place had been driving the country’s economy.
“They (the current Government) have done a good job in bringing in foreign direct investment and this is something they do not want to derail from.”
However, he acknowledged that the upcoming GE would have an impact on the outlook of the stock market in the short term.
Chua, who offered several scenarios on the election outcomes, said the local bourse might face downward pressure should the Opposition come to power, as investors would be concerned about the uncertainties that a change in the governing coalition entailed.
“If that doesn’t happen, then Malaysia will continue to play catchup,” he said, expecting the benchmark FTSE Bursa Malaysia KL Composite Index (FBM KLCI) to hit 1,720 points by year-end.
The local equity market has been lagging behind neighbouring countries like Thailand, Indonesia and the Philippines due to the GE risks.
Chua, further, does not rule out another knee-jerk reaction to the stock market when polling results are announced, not unlike what happened on Wednesday in the trading hours leading to the announcement on the dissolution of Parliament.
“People will sell down due to sentiment but the fundamentals remain. Institutional funds will enter on dips, as they see discounts in blue chips,” he said, adding that fundamentals of Malaysian companies were solid based on the double-digit growth recorded in earnings per share.
Other factors that would affect the growth of the domestic stock market include the recovery of the global economy.
“We are bullish on the Malaysian market ... we don’t see any volatility in terms of policies, while interest rates would remain stable at 3%,” he said.
Foreign investors stayed invested when they saw stability and clarity, he noted.
He expects the economy to grow by 5.5% to 6% this year and 6% next, while the ringgit could strengthen to three against the US dollar by yearend.
He also expects real investment growth of 14.1% year-on-year and an inflation rate of 1.7%.
Chua said while the ratio of household debt to gross domestic product at 80.5% would seem high, prudential measures in managing the balance sheet were important.
He compared Malaysia’s household debt levels to triple-A-rated countries such as Singapore and Australia, where debt was at 74.2% and 110%, respectively, by noting that Malaysia’s debt trend was quite similar to Singapore’s based on data from 2007.
He pointed out that most of the debt was held locally, resulting in lower volatility.
Chua believes that the investment strategy theme would be urbanisation, with infrastructure building and domestic consumption among the factors. As such, he favours the construction sector, which would benefit from infrastructure building and the ongoing Economic Transformation Programme projects.
He also likes the oil and gas sector and expects exploration activities to continue, supported by stable crude oil prices.
He sees opportunities in the telco sector, based on consumer consumption growth and robust dividend play, while the consumer sector would benefit from domestic consumption-oriented economic growth.
Chua said valuations for some consumer stocks would start to look relatively cheap should they grow at double-digit compounded annual growth rates for the next three to five years.
However, he feels that plantation stocks were laggards due to the current low prices of crude palm oil.