RHB Research expects foreign portfolio interest to remain elevated with a focus on defensive sectors – consumer, healthcare, utilities, basic materials, REITs, and resilient high dividend-yielding stocks.
It said that Malaysia’s limited trade and business ties with Russia and Ukraine, coupled with the old economy, commodity-centric industries, offers Bursa Malaysia some defensive attributes
The stockbroking house said that the Ukraine crisis is a significant inflationary event that will present the US Federal Reserve with a dilemma on how to conduct its monetary tightening programme. A prolonged crisis will threaten global economic recovery.
RHB said that the fiscal and regulatory risks remain as higher oil prices continue to add to a rising fuel subsidy bill that already exceeds incremental fiscal revenues. “The heightened market volatility supports a trading strategy centred around core defensive exposure,” the stockbroking firm said.
RHB said the recent outperformance of large caps has already lifted the KLCI’s FY22F P/E to 16.5x on the back of nominal EPS contraction of 2.2% that suggesting profit-taking on the large caps and investor patience to accumulate at lower levels.
On the performance of the various sectors, RHB said that five sectors beat expectations – including the bellwether banking sector, plantation, auto, NBFI, and property – which trumped the two sectors that disappointed (gloves and consumer).
It said that the banking sector reported robust operating metrics, coupled with well-contained credit costs, while plantation earnings beat on the back of higher CPO prices realised.
RHB said that the December quarter results were relatively encouraging, building on the green shoots of recovery seen during the preceding September quarter on the back of the normalisation of economic activity that will continue to gain momentum through 2022.
It said that the market’s defensive attributes are attracting new foreign portfolio flows while the anticipated relaxation of border restrictions will lift trading sentiment.
“Nonetheless, regulatory and political risks, a protracted crisis in Ukraine as well as uncompelling valuations could limit the market’s fundamental upside,” It said.