Malaysia's Stock Market Could Be Near Turnaround, Macquarie Says
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Malaysian equities, the world’s worst major market this year, might be close to a turnaround on the back of the government’s increasing support, according to Macquarie Group Ltd.
Reforms at state-linked companies, more political clarity and stimulus could see the benchmark FTSE Bursa Malaysia KLCI Index surge to 1,800 in the base scenario, or even reach 1,900 in the bullish case, Macquarie analysts wrote in the April 26 note. That implies a 10 to 16 percent return from Friday’s close.
Malaysian stocks have bucked the global rally this year, losing more than 3 percent in 2019 while the MSCI Asia Pacific Index gained 11 percent. An economic growth slowdown and uncertainty over the new administration’s policies led to $4.4 billion of equity outflows in the past 12 months.
Prime Minister Mahathir Mohamad has shown signs of moving away from his earlier budget-cutting stance to revive large state projects and seek foreign investments. Malaysia struck a deal with China to resume the East Coast Rail Link at a lower cost and revived the $34 billion property and transport hub Bandar Malaysia.
“Fiscal stimulus, per resurrection of ECRL and Bandar Malaysia projects, is returning, oil prices are exceeding target and liquidity is ample,” the bank said in the report. “Government policy-centric catalytic news flow alone could allow the KLCI to recover to 12-month highs of 1,850.”
Macquarie expects similar developments to happen with MRT 3 and the Singapore-Kuala Lumpur high-speed rail project, as well as in the telecom sector and within the Petroliam Nasional Bhd. group of companies.
The KLCI is showing some signs of a revival. It climbed 1 percent last week, halting five straight weeks of declines, the longest stretch of losses since 2015.
The main risk remains Malaysia’s potential exclusion from FTSE Russell’s World Government Bond Index, which could lead to $23 billion of government bond outflows as other index providers follow suit and worsen foreign selling in the country’s equities, the bank said.
The investment bank prefers “yield-resilient” plays, corporate banks, government-linked companies:
|Theme||Macquarie’s top picks|
|“Deep-value”||Tenaga Nasional Bhd, Telekom Malaysia Bhd, Axiata Group Bhd|
|Petronas units||Petronas Chemicals Group Bhd, MISC Bhd|
|Corporate banks||Malayan Banking Bhd, CIMB Group Holdings Bhd, AMMB Holdings Bhd, RHB Bank Bhd|
|Construction||Gabungan AQRS Bhd, Malaysian Resources Corp, HSS Engineers Bhd|
|Ringgit weakness||ViTrox Corp, Top Glove Corp|
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