Tech firms, reopening beneficiaries seen as top Malaysian stock picks in 2022

Kuala Lumpur

AFTER a largely disappointing year in 2021 and with trading sentiment still clouded by a host of risk factors, Malaysian stocks will likely see a market upswing at the start of 2022, fuelled by reopening hopes as investors shrug off fears over the Omicron coronavirus variant, analysts said.

Investors in the country will have to carefully pick the right stocks to do well this year, UOB Kay Hian said in a report.

However, UOB Kay Hian is advocating going defensive in the second quarter of 2022 as the market refocuses on global monetary policy tightening, in anticipation of policy rate hikes by major central banks around the world.

Domestically, investors will have to contend with policy and regulatory risks in Malaysia ahead of a general election that must be held by mid-2023, according to analysts from Maybank Investment Bank and RHB Investment Bank.

Fund manager Areca Capital concurred that growth recovery and the reopening of the economy will be among the key investment trends to watch in Malaysia this year, after failing to materialise in 2021.

"Stocks that are proxies to recovery such as banking and finance, as well as consumer companies like the Genting Group, will be the focus," Danny Wong, the chief executive officer of Kuala Lumpur-based Areca Capital, told The Business Times.

He also favours service providers in the technology, and electrical and electronics sectors, saying that these companies will benefit from the global chip shortage and a pent-up demand for products related to the Internet of Things and the 5G mobile network.

A third of Areca's portfolio is made up of technology stocks, including Inari Amertron, Globetronics Technology and Malaysian Pacific Industries, while banks constitute a fifth of its investments.

Wong said the rest of his portfolio consists of exporters and industrial companies, with a view that investors will eventually move beyond the flooding and labour shortage problems in Malaysia to focus on the growth prospects.

Malaysia has experienced a turbulent year in 2021, which was reflected in the country's stocks market benchmark FBM KLCI being the worst performer in South-east Asia.

A record surge in Covid-19 cases last year combined with political infightings to result in the eventual resignation of former prime minister Muhyiddin Yassin last August.

While the pick-up in vaccinations and paced economic reopening supported the subsequent market uptrend, a populist turn in policymaking into Budget 2022 deflated sentiment and overshadowed other positive drivers such as robust corporate earnings and the strength in the export-oriented manufacturing and commodities sectors, Maybank said in a report.

Among others, the Malaysian government has introduced a one-off prosperity tax on super profitable companies that have generated high income during the Covid-19 period.

"The tapping of primarily the corporate sector to shore up the government's fiscal position raises significant policy uncertainty with regard to similar follow-on or extended measures that will further sap corporate profitability, especially given the backdrop of sustained fiscal stress," Maybank said.

With the next general elections due by mid-2023, tax measures that directly impact voters such as the return of the goods and services tax or a value-added tax are likely to be deferred, Maybank said, increasing the interim risk that the corporate sector will again be called upon to bridge any fiscal gaps.

Current Prime Minister Ismail Sabri Yaakob has said last month that Malaysia's fiscal deficit is expected to reach 6 per cent of GDP in 2022, compared with a projected 6.5 per cent in 2021.

"We expect 2022 will be no less challenging for markets, as investors grapple with emergent domestic policy and regulatory risks, the perilous state of public finances, and an evolving political backdrop, combined with broader macro risks stemming from inflation, the global recovery and state of China's economy," RHB said in its report.

RHB has a "Buy" rating on several stocks including AMMB Holdings, CIMB Group Holdings, Genting, CTOS Digital, Mr DIY Group, and Press Metal Aluminium Holdings.

"We think 2022 will be a traders' market that will require astute bottom-up stock picking and a nimble touch to outperform. In our base case recovery scenario, equities will still remain the preferred asset class," RHB said.

RHB recommends investors nibble on value and cyclical plays on weakness, with core holdings in defensive and high-yielding shares, along with export-centric stocks and companies with a strong environmental, social, and governance profile.