Stick to fundamentally sound and liquid plays ahead of GE15 – UOB Kay Hian

Inve$t | Market Sentiments | 21 October 2022

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According to UOB Kay Hian’s head of Malaysia research Vincent Khoo, in his strategy report released on Wednesday (Oct19), sees some trading opportunities tied to speculation surrounding the upcoming 15th general election (GE15). However, the research firm advises investors to stick to fundamentally sound and liquid stocks. Its assessment assumes a base case for an Umno-led coalition winning a bigger majority in Parliament during GE15, taking cue from the results of several by-elections and three state elections since GE14. While this positively implies stability in politics/business policies, the market still lacks past elections’ (before GE14) mojo of coinciding with major government contract awards.  

Instead, investment sentiment will continue to be swayed by global issues — stubbornly high inflation and the US’ monetary policy contraction throughout 2022, the ongoing Russia-Ukraine war, and China’s zero-Covid policy. UOB Kay Hian’s top picks are large-cap stocks such as government-linked banks CIMB Group Holdings Bhd, Malayan Banking Bhd and RHB Bank Bhd. He also likes Gamuda Bhd and MY EG Services Bhd (MYEG) as he expects the newly installed federal government to award the Mass Rapid Transit 3 Circle Line contracts by the first quarter of 2023 — for which Gamuda is a leading bidder for the tunnelling section — and to give the green light for MYEG to roll out the automated testing module for car driver licence. He added that Citaglobal Bhd (formerly known as WZ Satu Bhd) could also appeal as a concept-driven trading play.  

Acknowledging that some investors would remain wary of GE15’s dampening investment sentiment, the research firm is also recommending a list of defensive high yielders, which are not operating in politically sensitive sectors. These high yielders are also predicted to deliver market-outperforming absolute returns. They include Bermaz Auto Bhd, Hap Seng Plantations Holdings Bhd, Kim Loong Resources Bhd, Malakoff Corp Bhd, Matrix Concepts Holdings Bhd and Sunway Real Estate Investment Trust. Some of these companies are cash-rich and are likely to reward shareholders with special dividends, such as Bermaz. As Hap Seng’s dividends are back-loaded, we expect chunky dividends to be announced [along with its results for the fourth quarter of financial year 2022].  

He also projects that the benchmark FBM KLCI will continue to trend up towards the year end as US core inflation indicators would have peaked by then. However, there is downside risk to our end-2022 FBM KLCI target of 1,585 points should our base assumptions/hopes not all materialise — peak US inflation, the Russia-Ukraine war not worsening, and a not overly harsh winter season in the eurozone. 

Retail investor capital presents US$35b growth opportunity for sustainable investing in Malaysia – StanChart 

According to Standard Chartered’s Sustainable Banking Report 2022 released on Tuesday (Oct18), Malaysia could mobilise US$35 billion (RM165 billion) in sustainable retail investments by 2030, particularly the financing of climate transition. This capital could also play a critical part in bridging funding gaps in Malaysia’s other environmental, social and governance (ESG) priorities such as pollution and waste management. The report said Malaysia has high potential for growth in sustainable investing, largely due to its significant population and rising domestic wealth. Across Malaysia, 36% of investors want to put their money towards addressing climate issues. Greater access and transparency in the sustainable investment ecosystem could mobilise Malaysia’s retail capital potential in reaching its carbon neutrality targets, aside from other ESG issues of concern to retail investors, such as pollution, waste management and energy security. Investors in Malaysia identified perceived low returns/higher risk (53%), accessibility (51%) and comparability (45%) as their top barriers to increasing their sustainable investments.  

The report further highlights the need for investor and market-specific barriers that need to be overcome to translate this investor interest into actual impact. According to Standard Chartered Malaysia managing director and head of consumer, private and business banking Sammeer Sharma, research showed that 72% and 86% of affluent and high net worth investors respectively in Malaysia have a high level of interest in sustainable investments, motivated by their desire to help restore the environment and hedge against ESG risks. The synergies between syariah-compliant investing and sustainable investments also present an opportunity to channel private capital towards sustainable investments. He added that a rapidly growing number of clients want their investments to make a positive impact on the environment and in society, and there is significant appetite to take ESG investment from a niche play to a mainstream investment strategy. 

SC inks regional supervisory cooperation deal 

The Securities Commission (SC) has inked the IOSCO Asia-Pacific Regional Committee’s (APRC) multilateral memorandum of understanding for supervisory cooperation (supervisory MMoU) at the International Organisation of Securities Commissions (IOSCO) annual meetings 2022 in Morocco recently. According to a statement by SC, given the increasing cross-border activities in capital markets within the region, this supervisory MMoU establishes, for the first time, a formal framework for regional supervisory cooperation among capital market regulators. With the signing of the supervisory MMoU, the SC now has a cooperative arrangement on supervisory matters with its regional regulatory counterparts including in Australia, Hong Kong, Japan, Singapore and Thailand. SC chairman Datuk Seri Dr Awang Adek Hussin said cross-border supervisory cooperation is a key element to enhance investor protection. He added, information-sharing with regional regulators through this platform will strengthen the SC’s overall supervisory capabilities.  

APRC chair Takashi Nagaoka congratulated the SC for being among the first signatories of the IOSCO APRC supervisory MMoU. He said, this is an important milestone that will enhance regulators’ cooperation and coordination across borders. The SC has also been re-elected as a member of the board of IOSCO, the governing and standard- setting body responsible for leading the direction and standard-setting process on policy issues affecting global capital markets, for the 2022-2024 term. The SC has been a member of the IOSCO board since 2012. During the IOSCO annual meetings, global securities regulators discussed the impact of current international developments in the financial sector, including the risks and challenges to the capital market. Delegates also shared their views on a wide range of topics, including crypto and digital assets, sustainable finance, emerging risks and retail market conduct. The IOSCO is the leading international policy forum for securities regulators, where the organisation’s members regulate more than 95% of the world’s securities markets in 130 jurisdictions. 

Eye On The Markets 

This week, on Friday (21Oct), the Ringgit opened at 4.7355 against the USD from 4.7115 on Monday (17Oct). Meanwhile, the Ringgit was 3.3226 to the Sing Dollar on Friday (21Oct). On Monday (17Oct), the FBM KLCI opened at 1383.50. As at Friday (21Oct) 10:00am, the FBM KLCI is up 55.61 points for the week at 1439.11. Over in US, the overnight Dow Jones Industrial Average closed down 90.22 points (-0.30%) to 30,333.59 whilst the NASDAQ shed 65.66 points (-0.61%) to 10,614.84. 


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