Construction, small and mid-cap stocks expected to benefit

Kuala Lumpur

CONSTRUCTION companies and a number of small and mid-cap stocks came under focus in the market on Monday, with both segments perceived by investors as being share-market beneficiaries under Malaysia's Budget 2017.

There was little buzz among the property companies because the focus of the budget was on affordable homes, where margins are far less attractive.

Not only did the industry's players rue the lack of initiatives to boost sales (including allowing the reintroduction of developer interest bearing schemes), high-end developers would also be chafing at the rise in stamp duty on instruments of transfer of real estate worth more than RM1 million (S$333,894).

Stamp duty will go from 3 per cent to 4 per cent from Jan 1, 2018, giving potential buyers 14 months to make a purchase and so beat the deadline - assuming demand picks up next year, when the economy is projected to improve.

Given the fiscal constraints necessitated by Putrajaya's tight fiscal position and its deficit commitments, the 2017 budget did not contain many market- and consumption-oriented recommendations.

The few that were aimed the market's way included an allocation of up to RM3 billion by government-linked investment companies for external fund managers to invest in small- and mid-cap companies. This is expected to shift some of the interest from the top 100 listed companies, as would a measure to boost research in smaller firms through an initial funding of RM75 million by the Capital Market Development Fund.

Analysts said details need to be fleshed out, but expect the move to be positive for the market, which is 1.4 per cent down in the year to date.

A remisier said he did not think investor interest was noticeably up. He said of the 1.6 billion shares traded, compared to the daily average of 1.5 billion: "The volume is not that high."

There were 407 decliners to 378 advancers; the benchmark FBMKLCI closed 0.47 per cent up at 1,678 points.

Unlike in previous years, the index traded sideways ahead of the tabling of the budget last Friday.

Analysts recommend that investors buy the better small-caps before the funds enter, but also advised caution on the back of external headwinds in the coming months.

AllianceDBS Research is maintaining its year-end target of 1,700 points or a 1.3 per cent upside, based on a bottom-up valuation.

It warned of uncertainties in the fourth quarter stemming from the US in the form of a possible rate hike by the Federal Reserve and the American presidential election.

There were a number of gainers in the construction sector, not so much because new projects were announced, but because the jobs appear to be priority works.

The Pan Borneo Highway aside, the proposed East Coast Rail Line is attracting a lot of attention.

The 600km track will facilitate the movement of people and cargo between the Klang Valley and towns along the rail line, which include Kuantan, Kuala Terengganu and Kota Baru on the east coast; the line ends in Tumpat in Kelantan, near the Thai border.

Speculation of Chinese interest in the project has raised eyebrows, and its estimated RM55 billion price tag has prompted cynics to ask if it is going to be the world's priciest rail.

In any event, a number of construction players, particularly the well-connected, have been climbing on heftier order books. Piling specialist Econpile Holdings, Gadang Holdings and Ekovest, for example, added more than 3 per cent on Monday to chart new highs.