Corporate earnings likely to rebound in 2017

PETALING JAYA: Analysts see corporate earnings growth as the silver lining in the local equity market this year, on the back of rising commodity prices and the low base effect.
“Corporate earnings stand a good chance for a rebound, thanks to higher commodity prices and the low base effect,” Kenanga Investors Bhd chief investment officer Lee Sook Yee said at a unit trust investment fair organised by Fundsupermart last Saturday.
Malaysia was the second worst performing equity market in Asia for 2016 after China. However, things could improve in 2017.
For instance, she said it will be good enough to keep the market interest in oil and gas companies, if oil prices stay at the current level of about US$55 per barrel.
CPO prices, meanwhile, are expected to remain buoyant at least the first half of the year, but seen to decline in the second half when production peaks, according to Lee.
Construction sector is another catalyst for the local stock market with RM212 billion worth of infrastructure spending in the pipeline, with 30% to be realised in 2017.
Other supporting factors include foreign direct investments (FDIs) from China, the reform of government-linked companies (GLCs) and the general election, said Lee. However, she does not prefer the glove industry due to the oversupply issue.
Meanwhile, Eastspring senior fund manager of equities Tung Yin Wai, foresees the banking sector performing better in 2017, which will be reflected in the KLCI.
Lee believes the downside risk for the stock market is limited after earlier massive outflows. As at end 2016, Malaysia’s foreign shareholding stood at 22.3%.
“After three years of underperformance in KLCI, we may see a chance for it to rebound. We’re defensive in dividend yield of 3%, one of the highest in the Asean region,” she said.
On a broader base, RHB Islamic International Asset Management Bhd chief investment officer Nik Hazim Nik Mohamed said investors should also look at the Asean market, thanks to its huge population which offers more investment opportunities.
“You cannot avoid the megatrends – population and the rise of middle income group,” he noted.
CIMB Principal Asset Management director of financial institutions marketing Harry Leong also said that valuations for Asia Pacific (ex-Japan) stocks are more attractive compared with that of developed markets regardless earnings growth or price-to-earnings ratio.
On the economy front, Lee believes Malaysia’s gross domestic product (GDP) will grow between 4.4% and 4.5% in 2017 compared with an estimated 4.2% to 4.3% in 2016.
She is of the view that Malaysia will be able to achieve the 3% fiscal deficit target, thanks to the rebound in oil prices.
Commenting on the currency, Lee said while the ringgit is undervalued, the currency is projected to remain bearish within the next one to three months, with the biggest risk to it being the high foreign holding of 48% in Malaysian Government Securities (MGS).
“In November alone, there was a RM20 billion sell down, a lot of it still stuck in Malaysia because of Bank Negara’s forex measures that limit the repatriation of money,” she said, noting that the central bank’s move will pose a negative impact on the currency.
The ringgit weakened to 4.4515 against US dollar as at 5pm yesterday. – by Lee Weng Khuen