THE reimposition of the nationwide Movement Control Order (MCO) on June 1 has certainly weighed on the pace of the country’s economic recovery, which was just gathering speed when most activities were halted.
The World Bank has slashed its GDP growth forecast for Malaysia this year, citing the resurgence in Covid-19 cases and slower-than-expected vaccine rollout. It now pegs GDP growth at 4.5%, from earlier estimates of 6% in March and 6.7% in December 2020.
Given the more tepid growth, what lies ahead for investors in the second half of the year?
Affin Hwang Asset Management Bhd managing director Datuk Teng Chee Wai suggests that banking, telecommunications and healthcare stocks may be worth a look.
“Banking is a very nice recovery play, especially second-tier banks that have been beaten down. They are trading below book value because their earnings have not been fully reflected,” he says.
“I don’t think banks will be hit by high non-performing loans (NPLs) anyway because of the lockdown. Also, no big NPLs were seen in the 1Q results. If economic activities are coming back by next year, then banks should be a natural beneficiary.”
As for telcos, Teng believes they will benefit from the data migration of enterprise players to the cloud from on-site. “The adoption of cloud computing is not a need but a must for enterprise solutions, and that will take place.”
Globally, the cloud space will continue to be dominated by the big players such as Microsoft Corp, Amazon.com Inc and Alibaba Group Holding Ltd, he says. “Those are good investments to make because cloud services will grow about 40% to 50% a year for the next four to five years. I don’t see that trend changing.”
Turning to healthcare, Teng points out that hospital operators such as IHH Healthcare Bhd are likely to see the return of patients after the Covid-19 situation has normalised. And despite growing political noise, exports of electronics manufacturing services or semiconductor products will unlikely be affected, he says.
“Most of them are telling us that demand is amazing. It is just that valuations of 35 to 40 times take a lot [of gumption] to buy. That’s why we have taken some profit. But at some point, we will have to get back to that particular space.”
Inter-Pacific Securities Sdn Bhd head of research Victor Wan is of the view that interest in recovery stocks will hinge on how much progress is being made in getting the population vaccinated. He thinks at least 60% of the population ought to be vaccinated by end-September, which is likely to prove a tall order even though the pace has picked up in recent weeks.
Thus, he believes the banking sector — seen as a reflection of the economy — will not provide a big lift to the local bourse, and is more keen on consumer discretionary stocks that are set to benefit from the economic recovery. “Banking stocks are still holding, but I don’t expect them to be the big movers in the second half of the year. The banking sector reflects the economy, [but] again, there is no reason to sell these stocks at this point as their earnings are still decent.”
MIDF Amanah Investment Bank Bhd research head Imran Yassin Yusof is taking a different position as he is of the opinion that banking stocks will still be key beneficiaries of a pick-up in demand for business loans. “With the vaccination and time frame, at least we have an idea of when we will recover,” he says.
He is less bullish on tourism-related stocks as borders may not be reopened so soon despite an acceleration in the vaccination rate. “We need to see a more concrete global situation and vaccinations. Tourism stocks are more for next year.”
Other potential beneficiaries of an economic recovery are automotive and construction stocks, he adds.
Investors may be wondering whether property stocks can ride a cyclical recovery. The sector may also appeal as most, if not all, property counters are trading way below their book value on the back of a deep supply glut made worse by the sluggish economy.
Teng thinks that some property players that have evolved will be able to emerge from the Covid-19 pandemic fairly unscathed. “They are able to price and create products where there is market demand. We have seen instances of two companies that are doing it right — Eco World Development Group Bhd and S P Setia Bhd have been able to achieve decent sales, even during the pandemic last year.”
In addition, Malaysia’s population per household still points to a need and demand for houses, he observes. The problem is that property prices are no longer affordable.
Picking the right property counters is key. “Bear in mind that the country’s saving rate is still very strong and the consolidation in the property industry has taken place over the last three to four years. I think some sub-segments are doing well and we do have exposure to those stocks,” says Teng.
Source: The Edge Markets