PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 23 Oct 2020, 9:35 AM


PublicInvest Research Market Strategy - Extending More Assistance

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KITA PRIHATIN: The government announced further initiatives under a package called KITA PRIHATIN which will involve an additional RM10bn in expenditure, necessary measures in times of need. While the economy is showing nascent signs of recovery, segments of society and businesses continue to be affected negatively by a pandemic situation which refuses to go away. To this end, the government will:

  • Roll out Program Subsidi Upah 2.0, in which employers who are still experiencing a 30% YoY drop in takings since the Recovery Movement Control Order period will be given RM600 in monthly wage subsidies for up to a maximum of 200 employees, from 1 October to 31 December this year. This measure will cost the government RM2.4bn.
  • Re-open Geran Khas PRIHATIN from 1 October to 31 October, to ensure more micro-businesses will be able to receive the necessary aid. This measure will cost the government RM600m.
  • Extend financial aid via Bantuan Prihatin Nasional 2.0 (which will cost the government about RM7bn) to the following:
    • 3.7m B40 households: RM1,000
    • 3.8m B40 singles: RM500
    • 1.4m M40 households: RM600
    • 1.7m M40 single: RM300

This latest stimulus package by the government will push its tally on Covid-19 related assistance to RM295bn or equivalent to 20% of Gross Domestic Product (GDP), one of the highest in the world, surpassed only by Japan (21.1%) but well ahead of US (13.2%), Germany (8.9%), China (7.0%) and France (5.0%). This short-term measure is expected to trickle down to the economy only in 2021 however. We remain cautious on the near-term outlook however given that Covid-19 remains a serious issue that could force governments around the world to revert back to a lockdown. This may take a toll not only on consumption but also investment and trade, sparking another interruption to the global supply chain.

KITA PERHATI: On a separate note, Opposition Leader and Port Dickson Member of Parliament Datuk Seri Anwar Ibrahim (DSAI) held a press conference at noontime yesterday to announce that he had the necessary numbers to form a new government and to assume the position of Prime Minister. Without providing further details other than to say the majority is convincing and that he seeks to have an audience with the Yang DiPertuan Agong soonest possible, the following few days promises to be eventful (or maybe not). This is made all the more interesting by comments from Sarawak-based Gabungan Parti Sarawak (with 18 parliamentary seats) in support of incumbent Prime Minister Tan Sri Muhyiddin Yassin (TSMY), and comments from Barisan Nasional and UMNO President Datuk Seri Ahmad Zahid Hamidi saying that many from his coalition and party have voiced support for DSAI.

The current ruling coalition has the slimmest of majorities (Table 1), with its position constantly under the microscope and under the threat of switched allegiances. But with the current opposition fractured into two separate camps and preventing it from mounting a credible challenge, where is DSAI’s convincing majority coming from?

The coming days: Heightened levels of uncertainty are likely to be the order of the day again. With no single bloc having an overwhelming majority, there appears to be many kingmakers in the fold. While it remains far from certain if anything will even happen, investors aren’t likely to take too kindly to uncertainties. The overnight 9-point (-0.6%) drop in the benchmark FBM KLCI doesn’t fully reflect the levels of anxiety in the local bourse. By comparison, the FBM Small Cap index fell 225.3pts or 1.7% while the FBM ACE Index slumped 417.6pts (-3.9%). Domestic retail investors who have been particularly active in the few months are likely to take their feet off the pedal pending further clarity on the situation. Foreign investors who have been exiting the market in droves (YTD 22 Sept: -RM21.5bn) may refrain from re-entering the market.

In the interim, the market will continue to throw up trading opportunities until the dust settles (if ever). Market valuations are attractive at current levels (16.2x 1-year forward earnings), though not yet compelling. From a shorter-term standpoint, the market is trading near one (1) standard deviation below its long-term average of 17.9x. The last 5 years, up until the recent Covid-19 pandemic, has been relatively “worry-free” hence investors willing to pay higher price-earnings multiples.

From a longer-term standpoint, the market offers very tempting propositions given that it has fallen back near its long-term average of 15.9x 1-year forward earnings, though still not as compelling (as compared to March 2020) as well. The inordinately long period (27-year sampling) captures various shocks (and “devastations”) to the market (ie. Asian Financial Crisis in 1997, DotCom bubble burst and 9/11 crisis in 2000/01, the Indian Ocean Tsunami in 2004, the Global Financial Crisis in 2008/09 and European Sovereign Debt Crisis in 2011/12).

In short, Figure 1 (trading-oriented stance) would suggest that a near-term bounce could be on hand, and timing may be opportune though not yet ideal. Figure 2 (fundamental-oriented leanings) would suggest that one still has time if accumulation is being sought. Given the current uncertainties however, investors may be betterserved waiting on more significant weaknesses before wading back into the market.

Sector-wise, a global economic recovery (albeit tepid) and by extension, consumption, will be a boon to the manufacturing sector, aided in part by the relatively weaker Ringgit. The furniture sector is a proxy to stronger US consumption spending. Gloves have been sold down recently, but will continue to attract trading interest owing to lack of fundamentally-stronger alternatives. Banks will find the going tough in 2020, but will benefit from eventual rate normalization (margin expansion) and expected economic recoveries (asset quality improvements and loans growth). Power, particularly renewable energy-related, should gain traction with the government’s resolve toward increasing its share in the generation mix.

Our year-end 2020 KLCI target of 1,480 points remains unchanged.

Source: PublicInvest Research - 24 Sept 2020

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