The widely-anticipated cut in the OPR is generally negative for the FBM KLCI by virtue of the index heavyweight banking sector, analysts say. — AFP photo
KUCHING: The widely-anticipated cut in the Overnight Policy Rate (OPR) is generally negative for the FBM KLCI by virtue of the index heavyweight banking sector.
Tthe team over at Hong Leong Investment Bank Bhd (HLIB Research) saw that in the past three OPR cuts, the KLCI fell by 2.5 per cent in a span of aweek since May 7, 2019; it dropped 3.6 per cent over 12 days since January 22, 2020 and it fell 17.5 per cent within 12-days since March 3, 2020.
“While negative for banks, our banking analyst notes that earnings impact should be less severe this time around as fixed deposits repricing is also quicker, given that about 80 per cent is expiring by June 2020,” it said in its notes yesterday.
“Although a dovish setting has done well for real estate investment trusts (REITs) in the past, it could be partially muted this time around as retail based REITs are bearing the brunt of the movement control order (MCO),” it added.
As such, HLIB Research advised investors to play on dividend yielders.
The KLCI’s dividend yield now stands at 4.53 per cent, representing a spread of 2.53 per cent to OPR and 1.68 per cent to 10-year Malaysian Government Securities.
These spread readings are rather unprecedented at above three standard deviation above 10-year mean, suggesting some upside potential for divvy plays.
“In addition, the defensive appeal of high divvy yielders should also stand out in light of the uncertainties from Covid-19,” it highlighted.
The research firm maintained its FBM KLCI target of 1,350.
“Having rebounded 13.9 per cent from its low of 1,220 on March 19 this year, some degree of profit taking could perhaps emerge as we enter the May reporting season,” it added.
“Key risks to watch out for include a second wave with lockdowns around the world eased/ lifted and the possible resurgence of US-China trade war, noting the less than cordial statements by US President Donald Trump on China.”