• The great recovery beckons. We remain positive on the stock market which we believe are firmly in a new bull market as the economy recovers swiftly from the worst GDP contraction on record. Bull markets typically began during recessions, and the backdrop remains conducive for a stellar year for Malaysia in 2021. Historically, stocks perform the best in early cycle recovery phase. Sentiment and portfolio positioning remained neutral to bearish, notwithstanding the recent market rally, which we think could trigger sustained upward moves in the next few months as investors look beyond 2020.
• Responsive monetary and fiscal policies plus vaccine roll out – powerful combination. The monetary easing and fiscal stimulus undertaken by Malaysia and other countries were unprecedented and were rolled out much quicker than in previous recessions as the health crisis triggered numerous challenges. The scale of the pandemic has also prompted major drug companies to develop and make available vaccines early. An acceleration in social and behavioural changes, including the need for improved technology and work-away-from-the-office culture, has translated positively to companies’ earnings and is set to continue into 2021.
• Key drivers remain constructive for stocks. Global trade has bottomed, while recent gains in commodity prices signal a revival in demand that could result in structural upswing in CPO. As the global economy emerges from the coronavirus lockdown, conditions could be set for a weaker US dollar, in turn strengthening emerging market equities, creating possible spill over to ASEAN stocks. Crude oil has stayed well above USD40/bbl and an additional driver for Malaysian stocks as the new US president focuses on renewable energy – impacting oil supply positively.
• Stocks are in new bull market. We have been calling for investors to move into cyclical stocks, particularly in industrial and basic materials. Our bullish stance taken for 2H20 and into early 2021 was based on V-shaped recovery – convincing investors to gravitate into economic sensitive sectors – as risk-on positions would be positive for industrials, basic materials and consumer discretionary sectors, in our view. We think the real action is likely to take place below the surface in mid-to-small capitalisation stocks, blending in to our main theme of great early cycle recovery. We predict a KLCI of 1,800 for 2021, an upside of 13% from the current level.

Source: BIMB Securities Research - 2 Dec 2020