KUCHING: After the FBM KLCI fell to a 52-week low of 1,708 amidst concerns of fiscal and national debt positions, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) is opining that the recent sell-down of the market has been overdone and that buying opportunities are ahead for investors.
In a market strategy report, the research arm noted that the volatility of the local market which saw RM5.6 billion of outflows of foreign capitals in May is heavier than expected despite the previous expectations that 2Q18 would be a weaker and volatile quarter.
The sell-down has now left the FBM KLCI trading at a discount of circa 10 per cent against the consensus index target of circa 1,940.
“As such, we reckon that the underlying market’s over-reaction presents buying opportunities,” stressed the research arm.
The currently levels below 1,765 offer excellent reward-to-risk for investors as Kenanga Research believes that it is highly probable that the market will soon revert to the mean of circa 1,850 levels.
“We believe a reversion back to the mean, implying 1850-level, is highly probable. Based on our Monte Carlo Simulation Study, with 68 per cent confidence interval or the near-equilibrium range, the FBM KLCI is likely to oscillate between 1,670 and 1,875 with higher probability at the top end.
“In fact, technically speaking, the FBM KLCI has yet to violate its long-term uptrend convincingly. From a technical perspective, the FBM KLCI is proven resilient as it still stands firmly above the long-term uptrend channel support line.
“For the immediate term, FBMKLCI is poised to swing upwards to close a gap between 1,760 and 1,770. Over a slightly longer-period, we are not surprise to see the index reverting back to 1,825, which is the long-term mean since 3Q15,” said the research arm.
In terms of stock picks, the research arm guides that some of the recently heavily battered down stocks that still deliver good numbers will be worth considering.
In the banking sector, Kenanga Research advocates that the recent sell-down in banking srtocks such as AMMB Holdings Bhd and CIMB Group Holdings Bhd will offer good value in the longer-term.
The construction and utilities spaces which have been suffering from negative developments of the cancellation of several major infrastructure projects and the introduction of a more transparent ICPT framework has sparked some major sell-downs in both sectors.
Kenanga Research believes that names such as Gamuda Bhd Tenaga Nasional Bhd and YTL Power International Bhd (YTL) will be value buys in these spaces.
“As for YTL, while its earnings outlook remains challenging in the immediate term before its two new green-field projects come on-stream after 2020, the selling could be overdone with a YTD decline of over 40 per cent probably because the YTL Group is one of the consortium members building the KL-Singapore High-Speed Rail (HSR) which is now being scrapped by the new government.
“Based on our estimate, its Wessex Water minus the group’s net debt is already worth RM0.83/share,” shared the research arm.
In the property sector, Kenanga research sees value emerging as valuations for most property stocks have reaching or have already met their trough levels. They top calls in this space is Malaysian Resources Corporation Bhd and UEM Sunrise Bhd for the deep values and extremely bashed-down share prices.
Meanwhile gaming stocks such as Genting is expected to go the distance as its GITP expansion program is starting to bear fruit.
And finally, the research arm adds that retail-related industries should be kept in consideration as potential improvement in consumer sentiment is expected to benefit retailers like AEON Co (M) Bhd and Parkson Retail Group Ltd, while automotive players like MBM Resources Bhd would benefit from strong car sales in 3Q18 prior to the reintroduction of the SST.
While the remainder of 2018 may not be exactly smooth sailing for the equity market, the research arm reckons that the spill-over effect of favourable seasonal factor coupled with improved buying interest and momentum from GBM KLCI undemanding valuations should lend strength to the improving securities average daily value (SADV) in the short run, at least in 1Q18.
“In fact, this is already happening with better SADV of RM3.1 billion as well as higher trading volume of 4.3 billion shares, from beginning of January 2018 till date of writing.
“We are expecting SADV to close at RM3 billio with average volume staying at 4.1 billion in 1Q18,” they said.