KUCHING: Key external and internal factors such as the upcoming 24th General Election (GE14) will play a crucial role in investors’ portfolio and stocks selection, impacting both prices and also the fundamental soundness of stock picks.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) the upcoming GE14, which must be held by end August this year, have started to effect the markets movement from last year.
“As elaborated in our 2018 Market Outlook piece published in December 2017, our markets have been underperforming the peers for for the whole of 2017 and 2018 year to date, similar to the pattern seen in the months leading up to the
13th General Election five years ago.
“Subsequent to the election, market took some breather before rising back. We think that it will be the same this time around,” it opined in an outlook report released yesterday detailling its opinion on the second quarter’s (2Q) direction.
“We expect markets to remain jittery in the short term, leading up to the upcoming general election and the immediate weeks or even months after it concluded.”
Meanwhile, MIDF Research also believed corporate earnings growth would likely be a little subdued in 2Q, owing from the high base effect, and also from effect of a stronger ringgit currency this year.
“Whist prices of commodities have increased the past quarter, the impact on corporate earnings might not be vastly impacted, owing to the corresponding ringgit strengthening, since the currency breached the RM4.00 level no so long ago,” it added.
“While the promising global economic outlook will provide a greater opportunity for expansion of exports in 2018, the increase sales when translated into ringgit, might not show a significant growth owing to the impact of better foreign currencies to ringgit conversion seen last year, despite at a lower export volume.”
Another key factor to look out for was geopolitics, which MIDF Research said was “still a major concern”.
“We also need to be wary about the impact of geopolitics, because it poses a risk to future earnings of listed companies. For example, the recent US tariff on steel and sluminium tariff caused a jittery effect on major steel exporters.
“Meanwhile, the concerns over China debt issues has also affected performance of the stock markets’ of countries which are most dependable to china for its exports.”
The above factors hurt either the revenue side and/or the cost side, MIDF Research said, while the interest rate hike impacts the financing side. With the higher cost of doing business and lower revenues, this would inevitably hurt profitability of the companies.
“When profitability is hit, it will impact the companies’ attractiveness to investors,” it highlighted. “With the anticipated impact of future earnings is generally priced in a stock’s current price. We therefore expect higher price volatility for the whole market, due to the higher market risk owing to the external factors.”
The research house said the ringgit strength’s might play a mitigating factor to companies which rely on imports of raw materials as well as those relying on earnings from exports.
A more stable US dollar and a stronger ringgit would provide one less concern on fund managers such that it provides earnings and costs visibility of companies they are invested in, it added.