Global politics, policy clouds key risks to Malaysian stock market

PETALING JAYA: 2017 is expected to be another volatile year for the Malaysian stock market with global politics and policy uncertainties posing the main risks following a tumultuous 2016, according to asset management firm Eastspring Investments Bhd.
Its director of fund management Yvonne Tan said while US President-elect Donald Trump’s policies will be closely watched, 2017 is slated to witness many elections.
Malaysia may go for an early general election although the deadline is end-April/early-May 2018. Others include Hong Kong’s chief executive election, and presidential elections in France, Iran and South Korea.
Should the 14th Malaysian general election (GE14) happen this year, as many expect, construction, media and gaming stocks on Bursa Malaysia are likely to be the beneficiaries.
“Generally, a general election favours stocks in the construction, media and gaming sectors on expectations of higher construction job awards, advertising and consumer spending in the lead-up to the voting,” Tan told SunBiz.
“We remain relatively cautious, looking for opportunities to accumulate fundamentally sound stocks on weakness,” she said, adding that it likes the local consumer and construction sectors.
In Malaysia, Tan said, the consumer sector remains resilient, thanks to the 1Malaysia People’s Aid programme and the Employees Provident Fund contribution cuts, which have had an impact on disposable income for the B40 group. Thus, consumer stocks that manage costs well and make efforts to remain relevant to consumers will continue to do well.
“With the infrastructure rollout still on the agenda for Malaysia, construction companies will also benefit. However, again, we would be more selective on those that have good cost control and can differentiate themselves with niche technical expertise,” she said.
MIDF Research said the possibility of GE14, the paradox of demand and supply of oil and uncertainties over US fiscal and monetary policies are likely to lead both ringgit and crude oil on a roller-coaster ride.
“However, we expect that the overall movement of the two will be flattish with upward bias, with our ringgit year-end forecast at RM4.20 and oil price at US$50 per barrel on average in 2017,” MIDF Research said in its 2017 outlook issued on Dec 27.
The ringgit is expected to remain weak in the near term as the US dollar continues to strengthen amid the on-going unwinding of carry-trades as a result of the US Federal Reserve’s monetary tightening stance.
“We believe Bank Negara Malaysia’s recent moves may help to mitigate currency volatility and stabilise the ringgit. A weak ringgit would benefit exporters generally.

However, on the flip side, this would be negative for automotive players with import content, companies with US dollar debt, companies with imported input cost or raw materials priced in US dollars, media companies that buy content priced in US dollar and airlines,” said Tan.
Last month, Nomura Southeast Asia equity strategist Shubhankar ‘Mixo’ Das said a general election in Malaysia this year is unlikely to surprise markets and therefore unlikely to be a significant catalyst.
“Given the sentiment around the political dynamics in the last two years, the election (expected to be called in the second quarter) will be negative for growth,” Nomura Southeast Asia economist Euben Paracuelles had said in a teleconference.
MIDF Reserve said earnings growth is expected to improve in line with increasing construction activities and stabilising crude oil prices, coupled with favourable macro growth outlook. It said the valuation for the FBM KLCI, Bursa Malaysia’s key index, is cheaper than its regional peers and its longer-term trend path is highly dependent on the expected earnings growth during the next 12 to 18 months.
“Earnings growth in 2017 may yet be stronger than what’s seen so far in 2016, which increases the probability of the equity benchmark to inch up from its current sideways performance. Therefore, premised on the rooted behaviour whereby earnings and prices are trending broadly hand-in-hand, we reiterate our 2017 FBM KLCI target at 1,830 points,” said MIDF Research.