Wuhan virus outbreak to delay, but not derail, market rerating: AmResearch

PETALING JAYA: The outbreak of the Wuhan coronavirus is believed to delay, but not derail, a potential market rerating this year, according to AmResearch.

The market rerating will be driven by catalysts such as increased appetite for risk assets, particularly emerging market equities including Malaysian equities, if the US Fed does not tighten its monetary policy coupled with the sustained high equity valuations in developed markets.

Other catalysts are the easing of the US-China trade tensions and the moderation of the global recession risk.

Besides that, AmResearch pointed out that there has been a change in Malaysia’s perceived country risk premium following significant political events.

“There is also a play on the ringgit, driven by events such as: (i) FTSE Russell is to retain Malaysia in the World Government Bond Index; (ii) a steep rise in crude oil prices (Malaysia is a net exporter of oil & gas) on geopolitical tensions; and (iii) an end to the easing cycle with no further cut in the overnight policy rate by Bank Negara Malaysia (BNM) in 2020.”

Despite fears over the virus, the research house is maintaining its end-2020 FBM KLCI target at 1,670 points.

“While we are positive on the outlook for the market over the next 12 months, we believe investors should exercise caution over the next three to six months as it appears that the current 2019-nCoV outbreak will not go away or taper off anytime soon, and it will probably get worse before it gets better.”

“More so, key stock markets in most parts of the world have been scaling record highs since the beginning of the year, leaving investors with plenty of room to take profits. We believe the downside risk to the local market is more limited given FBM KLCI’s major underperformance in 2019.”

Moving forward, AmResearch is “overweight” on banks, consumer, electronic manufacturing services, oil & gas and glove sectors with Maybank, Tenaga Nasional, RHB Bank, Westports, Kossan, Serba Dinamik, DRB-Hicom, MMC Corp, MBM Resources and Guan Chong as its top picks.

The FBM KLCI slipped 1.17 points or 0.08% to 1,550.47 points yesterday after a sharp fall of 21.17 points on Tuesday.

source https://www.thesundaily.my/business/wuhan-virus-outbreak-to-delay-but-not-derail-market-rerating-amresearch-EJ1946204