Market outlook for Malaysia continues to be challenging

0

KUCHING: The market outlook for 2017 continues to remain challenging amidst a rather tepid economic outlook for the world economy.

AllianceDBS Research Sdn Bhd (AllianceDBS Research) in a report yesterday said the sluggish global economic growth will continue to pose a challenge for the domestic economy.

Thus, the research firm expects macroeconomic conditions to remain challenging for Malaysia in 2017.

It opined weak domestic consumption amid rising unemployment rate, low income growth and high household indebtedness will continue to dampen the domestic economy.

Corporate earnings growth will remain uninspiring, it believed, attributed to a lack of conviction due to prevalent earnings risk from the telecommunication and banking sectors although it opined that corporate earnings are expected to rebound from a low base as compared to last year.

As such, it continued to be cautious on the market outlook in 2017.

Elaborating further, AllianceDBS Research observed that the ringgit continued to languish in early 2017 despite higher crude oil prices and the imposition of new regulations by the central bank to shore up the currency.

“With continued signs that the US economy is gaining growth momentum amid a tightening labour market, expectation of rising US interest rate will continue to lead to a strong US dollar in the near term,” it added.

“Under such an environment, net beneficiaries of a firmer US dollar and a strong US dollar economy include exporters in technology, electronic manufacturing services and glove manufacturing sectors.

“Our top picks for this theme include Inari Amertron Bhd, VS Industry Bhd and SKP Resources Bhd,” the research firm said in a note to clients yesterday.

On the flip side, the research firm believed net importers and US dollar borrowers will be adversely affected and these include companies in the aviation, automotive, oil and gas (O&G), plantation and media sectors.

Apart from that, AllianceDBS Research expects some newsflow on award of construction contracts for some of the mega infrastructure projects to happen amid talks that the 14th general election will be held soon.

For instance, the research firm noted several above ground packages for Mass Rapid Transit Line 2 (MRT 2) will likely be awarded by the middle of 2017 while the Light Rail Transit Line 3 (LRT 3) will also witness awards by the middle of 2017 while tenders being called in the first quarter.

Aside from that, it opined that the Pan Borneo Highway Sabah should also see some development, having lagged Pan Borneo Sarawak in terms of contracts award so far.

Besides that, the research firm believed there should be some newsflow on several projects which include the Gemas-Johor Bahru electrified double track, Tun Razak Exchange (TRX) and Bandar Malaysia.

Hence, the research firm top picks for the infrastructure theme were Gamuda Bhd and Sunway Construction Group Bhd.

On another note, AllianceDBS Research observed the earnings reporting season for the fourth quarter of 2016 (4Q16) will start soon until the end of February.

For 4Q16 earnings, the research firm said it is looking for signs that earnings de-rating has bottomed after a long string of earnings disappointment.

AllianceDBS Research pointed out that the research firm will be closely monitoring the earnings from banking and telecommunication players

It opined that the asset quality of Malaysian banks has held up so far and banks might spring a positive surprise on credit costs.

Meanwhile, it noted competition in the telecommunication sector, in particular in the mobile space, remained competitive.

As for the movement of the market index, it has forecasts the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) year end to be at 1,720 points, which was derived using a bottom-up valuation approach.