Weak corporate earnings growth in 2015

KUALA LUMPUR: Nomura International (Hong Kong) Ltd chief Asia equity strategist Michael Kurtz sees merely 2% to 3% earnings growth for Malaysian corporates in 2015 due to weaker exports and falling global crude oil prices.
"Malaysia is very export-driven and intensive economy, but unfortunately much of this export is either in the wrong kind of goods or to the wrong economies," he told a media briefing on the equity market outlook here yesterday.
Kurtz said, for instance, Malaysia is largely exposed to China, Singapore and Australia which are facing weak prospects.
"We don't see Malaysia leveraged to the particular areas of global demand growth that will drive earnings upside for other markets in the region like Taiwan," he noted.
According to Nomura's report, Malaysia's net exports of energy/commodity contribution to gross domestic product (GDP) stands at 2.2%, whereas most of the emerging economies within the region are in negative territory.
Malaysia's exports shrank 3.1% in October, raising concerns over a trade deficit for the fourth quarter.
Kurtz said he did not foresee any catalyst for the local stock market in 2015, with funds flowing away from commodity producing economies like Malaysia.
However, from a valuation standpoint, he noted the local bourse is trading at a discount as compared with its regional peers.
"Malaysia looks inexpensively priced and of course Malaysia historically is a lower beta market and therefore tends to be less volatile," Kurtz added.
He is maintaining a "neutral view" on the Malaysian market given the lackluster prospects for the equity market.
Stock-pick wise, Kurtz suggests Gamuda Bhd, IJM Corp Bhd, Malayan Banking Bhd and Telekom Malaysia Bhd.
With a slowdown in the Chinese economy and the US dollar strengthening, he believes the prices of commodities and energy will continue their downward spiral.
Specifically, commenting on global oil prices, he opined that the "risk remains to downside" with a downside target of US$60 (RM208.8) per barrel, with the price of oil expected to stabilise by the second quarter of 2015, at the earliest.
This is based on the re-acceleration of the US economy and some curtailment of global supply as few oil producers are expected to halt oil production if the price of oil stays below US$70 per barrel.
Kurtz also believes the falling oil price is not a short-term correction, but is likely to remain soft in 2015.
He noted that a stronger US dollar caps the upside of oil prices, and investors should avoid significant exposure in the energy upstream space, but could consider the downstream space such as refinery and petrochemical segments.
"We find that the time (to invest in) the oil and gas space (in the long term), particularly in exploration and production will only be when the physical oil prices stabilise," he added.
Lower oil prices, however, Kurtz said will bode well for the US economy as it could boost its purchasing power.