Pockets of opportunities in equity market but exercise caution, investors told

PETALING JAYA: After two weeks of almost relentless sell-off, equity indices around the world have entered bear territory, with markets trapped in a cautious mood or even occasionally under extreme risk aversion perhaps until the third quarter this year.

MIDF Research said equity prices and valuations are now becoming attractive. In March, the FBM KLCI has retreated 11.2% thus far.

That said, MIDF Research stated, in the absence of an ensuing outright recession, the equity market will thereafter establish a footing for a gradual upward march.

“Hence looking further forward into the final quarter of this year, we reckon the additional financial liquidity and outlays would help to propel the recovery of world’s equity market with the local benchmark FBM KLCI scaling towards our 2020 baseline target of 1,480 points,” it said.

In the meantime, the research house said there are pockets of opportunities for investors to take advantage of, given the significant retractment in share prices.

However, they also advised caution, noting that investors would need to select potential stocks which have solid fundamentals, defensive earnings nature, and attractive dividend yields which should moderate any downside risk.

“While we expect that equity markets will recover from current levels, we are cognizant of the fact that markets are extremely volatile at the current juncture. Gyration of circa 5% (sometimes more) in either direction seems the norm for now. This presents a very precarious situation for investors to navigate,” it said.

Meanwhile, MIDF listed 20 of its preferred stocks, which include utilities, healthcare, banking and logistics, as the companies are either defensive in nature or have solid fundamentals or a combination of both.

For healthcare, MIDF said UEM Edgenta Bhd is one of its top picks as it is set to benefit positively from the recent outbreak of the Covid-19 pandemic outbreak, from its healthcare support services (HSS) segment.

“With the outbreak of Covid-19, government hospitals need to maintain an exceptionally clean environment within the hospitals more than usual. Hence, more services are expected to be rendered by Edgenta to these government hospitals. We expect margin for the HSS concession to expand following this,” it said.

In addition, MIDF said the group is currently operating from a net cash position and will be able to meet the research house’s dividend forecast of 15.6 sen in 2020.

For banking stocks, MIDF said its picks include Malayan Banking Bhd, CIMB Group Holdings Bhd and Public Bank Bhd as they have been classified as domestic systemically important banks (D-SIBS), and so they will not be allowed to fail.

It also pointed out that CIMB has higher than expected capital which means that any stress to its asset quality can be mitigated, while Maybank has a very attractive dividend yield.

For utilities, MIDF’s picks include Tenaga Nasional Bhd, in which it sees value emerging.

“This is underpinned by easing capex for generation in the near-to-mid-term, which suggests base dividends of at least at the higher end of the group’s 30%-60% payout policy. Tenaga is now trading at just 12x FY20F earnings, at a deep 23% discount to the index’s 15.5x,” it said.

source https://www.thesundaily.my/business/pockets-of-opportunities-in-equity-market-but-exercise-caution-investors-told-YC2172706