Local stock market expected to be lukewarm at best

PETALING JAYA: The lack of “earth-shattering measures” in Budget 2018, will keep the local stock market lukewarm at best with players expected to refocus on external developments, such as US tax reform, Federal Reserve interest rate outlook and crude oil prices, say analysts.

“The market may still suffer from lacklustre corporate earnings and lack of forceful theme which will cap market’s upside. That said, downside is now protected by ample domestic liquidity as foreign selling abates,” Hong Leong Investment Bank (HLIB) Research said in its note on implications of Budget 2018 on the benchmark FBM KLCI.

The research firm still expects the FBM KLCI to move slightly higher towards yearend on decent domestic data amid strong tendency of a year-end rally. Its 2017 year-end FBM KLCI target remains unchanged at 1,760 (16x 2018 earnings per share). The index closed at 1,746.13 points on Friday.

HLIB Research’s top picks are Malaysia Airports Holdings, Genting, Malayan Banking, Sunway and Tenaga Nasional for the big caps, while it favours DRB-Hicom, George Kent, Lay Hong, Pecca Group and Rohas Technic for the small and medium capitalisation segment.

“We are mildly positive on 2018 Budget on (i) the government’s commitment to maintain economic resilience by raising disposable income and promoting investments; and (ii) wideranging measures to benefit the broader economy,” it said.

Meanwhile MIDF Research said it expects market reaction towards Budget 2018 to be measured considering that it provided a few material surprises that may attract only targeted buying interest in the equity market.

The research firm judged the impact of Budget 2018 on the FBM KLCI by focusing on the heavily weighted sectors of banking, telecommunications, plantation, oil and gas and utilities. It concluded that only the banking sector is to see a mildly positive impact from the “step-up” property financing measure which is now extended to private developers. It was previously only for PR1MA projects.

“Despite the not-too-exciting 2018 Budget, we foresee the FBM KLCI regaining its upward thrust during the closing months of 2017 to be propelled by (i) resumption of earnings recovery in 4Q17, and (ii) improving forward earnings expectations, respectively underpinned by continuing macro improvement and macro resilience,” it said in a note released on Saturday.

MIDF Research reiterates its FBM KLCI 2017 and 2018 year-end targets of 1,830 and 1,900 points respectively.