News

• Donald Trump won the US 45th Presidential Election, with Republican retaining control of both the Senate and the House of Representatives.

Comment

• Short-term impact of Trump presidency arises mainly from uncertainty about US policy-making, ranging from trade policy and foreign relations to implications on the Fed rate outlook.

• Global markets had swiftly reacted to the unexpected Trump presidency when vote counting was still ongoing. While calmness has returned in the overnight markets, we can still expect continued short-term volatility given the uncertain long-term implications. We expect market to undergo a period of volatility while monitoring the seriousness of Trump to follow through his extreme policies.

• On a positive note, global liquidity remains abundant with ongoing QE by ECB and BOJ, providing buffer to cushion the downside impact of any severe correction. Locally, BNM has issued a statement that market situation is being closely monitored to ensure ample liquidity support.

• Full execution of Trump policies (trade protectionism, fiscal expansion, etc.) could be short-term positive for the US economy. However, long-term implications on global trade (reversing globalisation boost to global growth) are still too early to establish. We note that the US is Malaysia’s 4th

export destination (direct exports). Malaysia’s trade surplus with the US has been rising in recent years, marking us the 10th trade deficit partner with the US (details in Figure #4-8).

• Companies under our coverage that have US revenue exposure are summarised in Figure #9. We opine that stocks in the export sector may be affected by adverse sentiment from anti-trade policy. In this regard, technology sector is more vulnerable to any trade policy change to help US jobs compared to other resource-based export sectors (i.e. glove, wood-based, plantation).

• On technical front, further range-bound consolidation is expected within 1,640-1,680 territory after failing to break above the downtrend line (details in our Traders Brief). Strong support is situated around 1,600-1,622 levels.

Target

• Lower our end-2016 FBM KLCI target to 1,680 on heightened uncertainty of US policy. Introduce our end-2017 FBM KLCI target at 1,760 based on 15.5x (historical mean) one-year forward earnings.

Strategy

• We advocate defensive stance in stocks with earnings certainty and domestic-oriented catalysts to weather market volatility induced by Trump uncertainty.

• Avoid technology sector as it is more vulnerable to any trade policy change compared to other resource-based sectors.

• Top picks: Big caps: Digi, Gamuda, Sime Darby, Sunway and TNB. For small/mid-cap stocks, we like GKent, Matrix, MBMR, SunCon and TiongNam. Our recently upgraded stocks (Sime & GKent) are now included (replacing MISC & Mitrajaya).

Source: Hong Leong Investment Bank Research - 10 Nov 2016