KUALA LUMPUR, Oct 11 — MIDF Research expects external factors to continue to hold sway over equity market sentiment despite the onset of the 15th General Election.
In a research note today, the investment bank said external factors that may influence domestic sentiment for Bursa Malaysia would be aggressive monetary tightening by major western central banks, the Russia - Ukraine war, and China economic conditions.
MIDF Research foresees that the GE15 would only add to the uncertainty and may affect sentiment negatively.
“In this regard, we expect the local equity market valuation to remain at below normal historical range mainly due to the consequence of the United States Federal Reserve's extended aggressive tightening on the world’s financial liquidity.
“Additionally, equity valuation could also be impacted by higher risk attached to earnings forecast corresponding to heightened economic uncertainty worldwide,” it added.
Given that market sentiment may be weak in the run-up to GE15, MIDF Research said investors should look for sectors that are more agnostic towards the result of the election and with good fundamentals that are closely tied to the performance of the economy, such as the banking sector.
“We continue to be positive on the banking sector and going forward, we expect banks’ core earning drivers to remain with strong loan growth and leading indicators, an environment still rich with liquidity to support the said loan growth, lower credit costs and overnight policy rate hike related benefits to net interest margins,” it said.
MIDF Research noted the banking sector is often synonymous with high deposit yields, with several offering yields above 4.0 per cent. It also said these factors should offset headwinds, namely asset quality concerns, normalisation of operating expenses, heightened deposit competition and still-weak non-interest income sources.
“Our top picks for the sector are Maybank and CIMB,” it said.
Meanwhile, Kenanga Research said the outcome of the GE15, in terms of which coalition prevails, would have a profound impact on the economy and the stock market, as its vision and policies would form the pathway of the nation for the next five years.
It noted that investors may rebalance their portfolios ahead of the election in accordance with their prediction of the outcome, or after the election in accordance with the actual result.
“We continue to advocate investors to seek refuge in domestically-driven sectors including banks, telcos, automakers/distributors, mid-market retailers and construction, amidst rising external headwinds.
“We believe the government of the day, post-GE15, will continue to be highly supportive of domestic consumption,” it said in a research note today.
— Bernama
