Malaysian stock market outlook
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The pick-up in growth is likely to be supported by domestic demand. Consumers have been under tremendous pressure in , with the government cutting subsidies and job market softening.
Despite that, consumer spending has been recovering steadily. We are cautiously optimistic that consumer spending will continue its recovery path in , underpinned by government stimulus and minimum wage hike back in July.
Consumers are also believed to have acclimatized with the new GST system implemented more than a year ago. In , there is also possibility for the government to introduce more stimulus measures to bolster consumer sentiment prior to an election, which is due on However, the pace of recovery is expected to be gradual as high household debt will continue to cap on the upside.
Government revenue is expected to improve from higher collection from direct taxation and oil related revenue, assuming improvement in consumption and investment activities and firmer oil prices ahead. This should allow the government to expand spending without putting a strain on its fiscal position. MRT 2 and Pan Borneo Highway are few of many large scale infrastructure projects which expected to kickstart next year. These high multiplier projects may create positive spill-over effect, which in turn support the domestic investment activities moving into Implications Despite a gradual pick up in consumer spending, consumers are likely to be cautious and selective with their spending as a full bound recovery has yet to be seen.
As a result, Consumer Discretionary sector is not expected to see a meaningful recovery at this juncture given that spending for big ticket items could remain lacklustre amid cautious consumer sentiment. On the other hand, Consumer Staples sector, may more or less see stable earnings growth ahead due to its resilient nature.
Big scale infrastructure projects in Malaysia have created numerous infrastructure jobs for those construction players, which could keep them busy moving into Successful tenders for those upcoming government projects in the pipeline would also improve earnings visibility for the coming years. As economic growth is projected to pick up, the outlook for corporate earnings looks brighter ahead.
Our expectation is that corporate profit to regain positive momentum and grow at a moderate pace in , ending the two-year earning recession in and A turnaround in corporate earnings should support local equities trending higher next year.
Moving forward, we see limited downside for Ringgit, considering how much it has already fallen. According to Bank for International Settlements, the real effective exchange rate for Ringgit is standing at This indicates Ringgit could be undervalued by Weak Ringgit has helped to boost earnings growth as a result.
However, strong earnings momentum is unlikely to persist into as FX gains fade amid stabilization of Ringgit. From a foreign investor perspective, the oversold Ringgit may appear to be attractive enough to induce inflow back into the equity market, serving as a positive factor that could support equity market performance in For domestic investors who are looking for offshore investment opportunities, one of the key risks that concerns investors right now is the rebound in Ringgit.
As such, it is important for investors to be selective when investing oversea as a possible rebound in Ringgit may detract returns. Investors could consider investing into equity markets that are expected offer attractive returns e. For bond investment, investors can consider to trim down bond funds with foreign currency exposures and park it under local bond funds.
Bursa Malaysia Stock Market Analysis Digest
We expect the central bank to take a neutral stance throughout but do not rule out a possible rate cut in the year ahead as growth is still gradual and fragile, with risks to growth remain tilted to the downside, especially on the external front amid rising risk of protectionism. Implications While possible easing by BNM favours longer duration play, we opined that its positive effect could be mitigated by further rate hike in US. On top of that, the current yield differential between long-duration bond and short-duration bond is not wide enough to justify a buy.
Hence, we prefer staying neutral on duration for now. Instead of taking on duration risk for higher potential return, investors with a higher risk appetite could consider allocating a larger portion of the portfolio towards riskier corporate bond segment as the spread remains reasonable for a better yield pick-up.
Loan growth will start to stabilize and more contained expenses including reduced labor cost, abating funding cost pressures and lower loan loss provision may flow through earnings in Plantation sector could see a better year in Tight CPO supplies, low inventory and a widening soybean-CPO premium are bullish factors that will help to sustain the current high CPO prices into 1H17 before momentum eases off in 2H However, ample forecasted supplies for soybean next year-the key substitute for palm oil suggests that further upside in CPO prices looks to be less possible moving forward.
This adds optimistic for a higher oil prices ahead. However, we see a significant surge in oil prices being an unlikely scenario for now, as upsides would be capped by a pick-up in activities in the shale oil industry-if exploration and production projects become feasible at higher oil prices.
Telecommunications sector is undergoing a structural change. This coupled with an increase in the number of players eg. Webe and a matured telco market should fuel stiffer competition in the coming year. Implications Banking sector is expected to do most of the heavy lifting for the KLCI Index next year as it recovers with better earnings growth, estimated at 7.
Positively, the sector as represented by Bursa Finance Index saw its PB valuation fall from their peak of 2.
The PB current valuation is attractive compared to historical average of 1. Upgrade our neutral call to overweight for the banking sector.
Earnings growth is likely to be strong in 1H17 but subsequently taper off in the 2H Near term growth outlook looks promising but valuations are somewhat demanding at forward PE of Hence, we are neutral for the plantation sector. Topline growth should remain uninspiring, as oil and gas activities may not pick up significantly as industry players are waiting for more clarity before embarking any CAPEX spending.
Valuations are cheap given how much they have fallen since late but long term growth outlook remains uncertain for now. Constrained topline growth and weak margin will continue to haunt telco players, which should translate into a lacklustre bottomline in The market is expecting 5.
Valuations are stretched at Retain our underweight call for the telecommunications sector. With valuation is at a slight premium now, equity return for KLCI is likely to be modest at best, considering earnings growth should be the major contributor to equity return, which we expect to come in at mid-single digit next year. As of 12 December , Malaysian big caps are expected to produce an estimated annualized return of 7.
Implications While the Malaysian equity market is only expected to provide a modest rate of return, investors should not shy away completely from the Malaysian equity market given its important role in portfolio diversification from the perspective of a Malaysian investor.
For domestic exposure, given the muted return expectation for the big cap segment, investors should consider underweighting index-tracking passively managed funds as their performance tends to track closely the performance of large cap stocks.
Malaysia Stock Market - Malaysia Economy Forecast & Outlook
In this regard, actively managed fund is preferable as the fund managers will be able to generate alpha through their superior stock picking skills. Other than that, investors who are looking for stronger growth opportunities in the local bourse could also opt for small cap segment as the valuation is now looking more attractive compared to the large cap segment.
As of 12 December , the FBM Small Cap Index is trading at a forward PE of Pages Why Fundsupermart Getting Started Account Opening Unit Trusts on FSM Recommended Funds Refer Your Friends Transfer In How To Transact Payment Methods Investors Say. Follow Us At Connect with us through the following social media platforms! OPEN AN ACCOUNT LOGIN.