Feedback from 2017 econ and strategy roadshow
■ We spent many weeks marketing our economic and strategy outlook to investors.
■ Some foreign funds are looking to raise their weighting in Malaysian equities.
■ There was no major pushback on our more bullish KLCI target vs. consensus.
■ Investors generally agreed with our 2017 growth and inflation outlook, while key
risks were trade protectionism and continued financial market volatility.
■ Maintain end-2017 KLCI target of 1,820 pts and top picks.
Improving interest from foreign funds…
We spent many weeks marketing our 2017 economic and strategy outlook to 240 investors from 48 investment firms in Kuala Lumpur, Singapore and Hong Kong. We also presented our outlook during CIMB’s 9 th Corporate Day event in January to more than 150 investors. We see improving interest from foreign funds as some are looking to raise their weighting in Malaysia.
…but Malaysian funds are more optimistic
Malaysian funds are generally more upbeat on the market prospects compared to their overseas counterparts. Foreign funds were mostly neutral to underweighted in the market, which is reflected in the low foreign shareholding of 22.3% in the equity market as at end-Jan 2017. However, they remain keen on stock ideas and some are relooking their underweight position in the market.
How we differ from consensus
We revealed to investors that we are more bullish on the end-2017 KLCI target of 1,820 pts (which is based on 16x forward P/E) against consensus estimates of 1,753 pts. This is because we are projecting stronger market earnings growth of 10% for FY17 (driven mainly by our non-consensus overweight call on the banking sector on the back of an earnings recovery). We expect the re-rating in KLCI to be driven by corporate earnings recovery and the return of foreign investors.
Themes and stock calls for 2017 investors most/least receptive to
Among our top three big cap picks, Sime Darby garnered the most attention from clients due to the potential demerger of its plantation assets, and we received some pushback on Tenaga due to concerns over its ability to raise tariffs to pass through higher fuel costs. Among our seven themes for 2017, investors are most keen on (1) PNB transformation; (2) small-mid cap funds and research scheme; and (3) tourism plays.
Keen interest in Malaysia’s macroeconomic outlook
Our meetings solicited interest in Malaysia’s recent macroeconomic developments and outlook. Investors broadly agreed with our outlook for growth (+4.2% in 2017) and inflation (+2.5% in 2017). Unsurprisingly, concerns over the global trade environment and the potential fallout for exporters – including Malaysia – and capital flows, became more pronounced.
Sector Comparisons - Big cap picks (click to enlarge)
Monetary policy options constrained by concerns over ringgit
Although investors were generally receptive to our argument that Malaysia’s monetary policy settings could be more accommodative (CIMB: 25bp cut in OPR in May or Jul), some were of the view that while an OPR cut would help to support the economy, an opportunity for Bank Negara Malaysia (BNM) to act may not avail itself due to volatility in the financial and currency markets. We shared our case that BNM measures in Nov and Dec 2016 would gradually shore up the ringgit, removing that potential roadblock.
Sector Comparisons - Small cap picks (click to enlarge)
KLCI hit new YTD high of 1,710 points
YTD, KLCI has done well, climbing 68.5 points (or 4.2%) to reach a new high of 1,710 pts yesterday. Sime Darby and Genting Malaysia were among the top three best performing stocks in the KLCI index so far in 2017, which fits in nicely with our PNB restructuring and tourism themes. Maintain end-2017 target of 1,820 and our top picks.
source: CIMB Research 16/2/2017