HLIB Research bullish on consumer, infrastructure sectors

PETALING JAYA: Hong Leong Investment Bank (HLIB) Research said the investors should prudently pick stocks with fundamentals throughout the fourth quarter (Q4), given the slowdown of trading activities in Q3.
The research house recommends stock picks within the consumer and infrastructure-related sectors as well as stocks with defensive earnings attributes, according to its strategy report.
With the recovery in household income and coupled with firmer ringgit, HLIB Research said consumer sentiments may improve further, translating into stronger consumer spending. Businesses that are consumer-oriented and defensive in nature with decent fundamentals may also bode well throughout Q4.
It believes news flows for construction may intensify in Q4 with potential contract announcements from rail-related projects such as Light Rail Transit Line 3 (LRT3), East Coast Rail Link (ECRL) and High Speed Rail (HSR).
In tandem with the firmer crude oil prices, share prices of some oil and gas stocks, which have already at rock bottom, may surprise on the upside.
HLIB Research's top picks include Three-A Resources, CCK Consolidated, Johore Tin, CSC Steel, Fajar Baru, Rohas Tecnic, RHB Bank, AWC, T7 Global and Dayang Enterprise.
Historically, the research house said Q4 tends to perform positively over the past 20 years, with 70% chances of higher close.
"Judging from the technical indicators, the FBM KLCI may chart a mild recovery towards year end within a projected range of 1,740-1,800 points. We have an unchanged fundamental-driven year-end target of 1,760 points."
Meanwhile, HLIB Research opined that market may have priced in the favourable economic developments with Q2 gross domestic product (GDP) rising to a high of 5.8%. Therefore, with the expectations of a more moderate growth in the second half of the year, trading activities on index heavyweights may turn cautious.
"Moreover, external events such as Trump's policies, unwinding of Fed balance sheet and the potential interest rate hike could reduce the appetite on emerging market assets including Malaysia.
"The stale market environment could be lifted by the steadier recovery commodity prices such as steel and Brent crude oil which trended stronger in Q3. Also, the firmer ringgit trend may induce trading activities among domestic-oriented consumer stocks."
In Q3, FBM KLCI and FBM Small Cap Index dropped marginally by 0.5% and 2.8% respectively despite still-favourable macroeconomic developments.
Daily average volume decreased 30.2% from 2.88 billion in Q2 2017 to 2.01 billion in Q3 2017, as buying interest subsided, while foreign participation was in the profit-taking mode in Q3 2017 with an outflow of RM244 million.