Budget 2020 as main trading catalysts for 4Q. On the back of improving optimism on trade war (amid the phase-1 deal between US and China), coupled with less austerity sounding Budget 2020 which market participants felt the change of tone vs. Budget 2019, we opine traders to lookout for sectors such as:- (i) Technology (automation, E&E and customized packaged investment incentives as well as weak ringgit ranging ~RM4.18/USD) (ii) Renewable energy (green investments tax allowance) (iii) Telecommunication (ongoing National Fiberisation and Connectivity Plan (NFCP initiatives) (iv) Construction (increased development expenditure by 2.4% YoY) (v) Tourism (to boost tourist arrivals to 30 million)

Time to scoop up some equities. In 4Q, we opine the slightly positive sounding Budget 2020 as well as window dressing in December (average 10-year December return: 1.98%) would be able to lift the broader market sentiment (although some earnings disappointment may surface in November). In addition, the earlier mentioned catalysts would bode well for stocks selections in 4Q.

Technology: We believe the broad technology sector will be benefiting under the E&E and automation incentives, which could result in higher demand for automation equipment moving forward; under this section we like ISTONE and KESM.

Power-related: With the increasing demand for rural electrification in Malaysia, PESTECH would be the favoured pick amid its power transmission infrastructure expertise. Meanwhile, for renewable energy stimulus, we like CYPARK.

Construction: Given the increase in development expenditure and potentially improving construction sector, we see precast concrete manufacturers such as OKA and KIMLUN to benefit from the initial stage of construction jobs.

Tourism: Under the Budget 2020, RM1.1bn was allocated for VMY2020, which the government intends to achieve 30m tourist arrivals. In this space, we like TUNEPRO for the Travel Insurance Play, Which Is a Proxy Towards Tourism Industry.

Source: Hong Leong Investment Bank Research - 23 Oct 2019