Russia invades Ukraine

• According to Reuters, Russia has launched its invasion of Ukraine by land, air and sea on Thursday following a declaration of war by President Vladimir Putin. An estimated 100,000 people fled as explosions and gunfire rocked major cities. Dozens have been reported killed.

• Our economist believes that the Eastern Europe tensions could cause commodities prices to surge and further disruptions in the global supply chain network. For 2022, our economist expects headline inflation to be between 2.4% and 2.6%. From the monetary policy’s perspective, we are expecting a 1–2 OPR rate hikes this year, which translate to 2.00% to 2.25% OPR by the end of this year.

• On the equity front, here is our take on the impact of the Russia-Ukraine conflict on FBMKLCI stocks:

1. Healthcare
IHH has a small exposure with earnings impact estimated at 1%. Among IHH’s foreign patients in Turkey, less than 5% are from Ukraine.

2. Gloves
There is a very minimal sales exposure. About 0.5% of Top Glove sales are to Ukraine.

3. Other sectors
Most sectors have no direct exposure to Ukraine. These include banks, telecommunication, oil and gas, plantation, consumer, utility, automotive and technology.

Maintain 2022 FBM KLCI target of 1,600 points

• Pending the conclusion of the earnings reporting season in February, we maintain our end- 2022 FBM KLCI target of 1,600 points. Our target forward PE is unchanged at 15.6x, which is pegged at -0.5 standard deviation (SD). The discount is to reflect the negative earnings growth projected for total FBM KLCI component earnings in 2022 and a higher stamp duty for share transactions which will affect trading volume.

Source: AmInvest Research - 25 Feb 2022