The Year 2022 will be a traders’ market that will require astute bottom-up stock picking and a nimble touch to outperform, although equities will remain the preferred asset class for captive domestic investors, RHB Research said in its Market Strategy.
It said that it recommends nibbling value and cyclical on weakness – with core holdings in defensive, and high-yielding stocks – along with export-centric stocks and companies with a strong ESG profile.
It said that it is OVERWEIGHT on Banks, O&G, Utilities, Healthcare, Basic Materials, Gaming and Technology. “We introduce our end-2022 FBM KLCI target of 1,630 pts after ascribing a 16x (slight premium to mean) PE to FY23 EPS.”
The research house said that while the base case scenario is an economic recovery, we believe this has been priced into a large extent. Macroeconomic headwinds and a widespread resurgence of COVID-19, coupled with the emergence of the Omicron variant will be a wildcard for markets.
“We also see policy and regulatory risks remaining elevated, given that the lack of political will to implement a holistic reform of public sector finances is already raising the spectre of higher taxes going forward.”
On the recovery scenario, it said that it will continue to unfold going into 2022, as a new growth cycle emerges, and the world adapts to COVID-19 in our midst.
“COVID-19 will remain a major source of volatility for global markets, as investors grapple with domestic policy and regulatory risks, the perilous state of public finances, an evolving political backdrop, and broader macro risks stemming from inflation, the sustainability of the global recovery, and state of China’s economy,” RHB said.
The RHB house view (and consensus) is for a healthy +5.5% GDP growth in 2022, helped by the base effect, an efficient immunisation program, the withdrawal of lockdown restrictions, high levels of pent-up demand, and gradual re-opening of international borders.
“While China risks remain, the US will anchor global growth, driven by robust consumer spending, a new inventory cycle, and large infrastructure spending package,” RHB said.
RHB said that the recovery scenario will continue to unfold going into 2022, as a new growth cycle emerges, and the world adapts to COVID-19 in our midst.
“COVID-19 will remain a major source of volatility for global markets, as investors grapple with domestic policy and regulatory risks, the perilous state of public finances, an evolving political backdrop, and broader macro risks stemming from inflation, the sustainability of the global recovery, and state of China’s economy,” it said.
