Watch out for better policies
KUALA LUMPUR: Emerging market investors will be looking for signs in Budget 2019 of better policy orientation and governance, says JP Morgan in a report.
This could lead to a positive shift from these investors, who have been “underweight” on Malaysia for the last 10 years, the international investment bank added in its latest emerging markets equity report published last week.
It said the government’s kitchen-sinking activities and cancellation/deferrals of major infrastructure projects were mostly done, and Malaysia remained part of JP Morgan’s emerging markets model portfolio, albeit still underweight.
Underweight refers to the percentage or exposure, of a particular security within the managed portfolio, which is lower than the portfolio exposure average or that is held in the benchmark portfolio.
“Emerging market investors have been underweight Malaysia for the last 10 years. However, if investors evaluate a change for the better in governance and policy orientation, this could develop into a meaningful opportunity,” the investment bank said.
JP Morgan has recommended that investors watch out for the 2019 Budget for economic growth policies leveraging the private sector and measures to increase home ownership for the lower/middle income segment.
However, the investment bank warned that Malaysia’s nearer-term performance may be constrained by a potential flux in capital expenditure plays and government-linked stocks, both prominently represented in institutional portfolios as policy risks are repriced.
Despite the underweighting, JP Morgan has marginally added its exposure into Malaysia using energy plays.
“Our commodities research team has significantly revised up its Brent forecast to US$83.5 per barrel in financial year 2019 from US$63 per barrel, largely due to supply side risks, especially Iran.
“Higher oil prices should provide further earnings upside to upstream companies. We express this view in our model portfolio via adding Hibiscus Petroleum Bhd,” it said.
JP Morgan has also suggested that investors stay close to consumer stocks, backed by government fiscal support. Healthcare and real estate investment trusts may also trade better in the near term given defensiveness, it added.
JP Morgan said exporters, especially of rubber and plantations, also continue to benefit from external demand and potentially weaker ringgit.
“We like Top Glove Corp Bhd and Kuala Lumpur Kepong Bhd for exposure to exporters, IHH Healthcare Bhd and Public Bank Bhd for defensiveness, Dialog Group Bhd for exposure to downstream oil and gas spending, and Ecoworld Group Development Bhd for potential pickup in property demand,” it said.
JP Morgan’s key avoids, according to the report, are Gamuda Bhd and IJM Corp Bhd for project review/cancellation risks as well as Telekom Malaysia Bhd for regulatory risk.
Source: NST