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Maybank IB reveals 1H 2018 Market Outlook

14th February, 2018

KUALA LUMPUR: Maybank Investment Bank (Maybank IB) said at its 1H 2018 Market Outlook session for its brokerage retail clients, that the Malaysian stock market is well supported by sound domestic fundamentals despite the recent sell down stoked by Dow Jones’ correction.

For the 1H of 2018, Maybank IB expects (1) Fiscal stimulus pre-GE14; (2) BNM’s OPR hike to be the two main thematics driving investment. For a longer term play, the focus is on three other thematics (3) Multi-year orderbook replenishment in infrastructure construction; (4) Tourism; (5) Look East, Malaysia. Besides Construction, sectors that are OVERWEIGHT for 2018 are Automotive, and Oil & Gas.

Potential beneficiaries of Theme #1 will be those in the Consumer-based as fiscal stimulus to boost disposal income is expected to continue and will be front loaded in 1H 2018. The OPR hike, on the other hand, has positive impact on banks. For Theme #3, Maybank IB favours proven contractors who have delivered over the years, and have high potential of winning the upcoming mega works. These include Gamuda, IJM Corp and Sunway Construction, and Cahya Mata Sarawak.

The tourism thematic is driven by increased in higher quality/higher-spend tourists and Visit Malaysia Year 2020, which is expected to give a boost to tourism as was the case in the previous two in 2007 and 2014. In 2007 and 2014, tourist arrivals surged +19% YOY and +7% YOY respectively, while tourism receipts grew +27% YoY, and +10% YOY respectively.

For the Look East Malaysia theme, Maybank IB sees latent potential in the East Malaysia and East Coast Peninsular Malaysia. It expects the major back-bone infrastructure currently under construction, namely Pan Borneo Sarawak Highway, Pan Borneo Sabah Highway, East Cost Rail Link, to lift economic activities. For Sarawak, the Development Bank of Sarawak and PETROS (Petroleum Sarawak Bhd) and for Sabah, the Sabah International Petroleum Sdn Bhd are also catalysts. Long term potential beneficiaries of this thematic are Cahya Mata Sarawak, Hock Seng Lee and KKB Engineering, Bintulu Port, Suria Capital and IJM Corporation.

Maybank IB’s top stock picks for 2018 are IOI Corp, Hong Leong Financial Group, Gamuda, Yinson, Genting Berhad, Cahya Mata Sarawak, Bermaz Auto, YTL Hospitality REIT.

The regional investment bank also expects Malaysia’s macroeconomic backdrop to remain positive in 2018 with another year of above-5% real GDP growth, at +5.3%, continuing the momentum from 2017. The growth is underpinned by sustained consumer spending growth momentum, stronger growth in investments with existing and rollout of new major infrastructure and investment projects, and the rebound in Government consumption expenditure. It is still optimistic on the Ringgit and has recently revised its end-2018 USDMYR forecast of 3.90 to 3.65.

Amidst positive global macros and momentum, the investment bank highlighted 2 key market risk factors that could derail sentiment, namely geopolitics risks, and financial imbalances and instability (including a faster-than-expected step up in US Fed’s monetary policy normalisation eg. interest rate hike and balance sheet reduction). Maybank IB said that it also expects the Malaysian stock market to continue to be volatile running up to the 14th general election. Post the 14th general election, market will be back to being driven by fundamentals which are well supported by GDP and corporate growth expectations.

Held annually for its brokerage retail clients, the 1H2018 Market Outlook roadshow kicked off in Ipoh on 13th January 2018, and went on to various locations across the country namely Taiping, Kota Kinabalu, Kota Bahru, Kuching, Penang, Kuantan, Johor Bahru, and Miri. The roadshow will end on 10th February 2018 in Kuala Lumpur. The Maybank IB Market Outlook sessions is an annual event where the regional investment bank shares their research ideas and investment strategies with their valued clients.

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