China’s reopening a relief to Malaysia’s ‘dour investment sentiment’

[KUALA LUMPUR] China’s long-awaited reopening of its borders to the rest of the world is set to boost the earnings of many Malaysian companies, with several listed firms already seeing strong buying interest since the start of the week.

“China’s economic and border reopening is significant to Malaysia’s equity outlook. (The) economic reopening provides some relief to the dour investment sentiment in Malaysia, although the uplift remains secondary to concerns of the western world entering recession amid the uncertain political landscape in Malaysia,” said Vincent Khoo, UOB Kay Hian (UOBKH) Malaysia’s head of research in a report on Monday (Jan 9).

He wrote that the two main clusters of beneficiaries are tourism-related (aviation and gaming) and commodity stocks. He added that the imminent return of Chinese tourists to Malaysian shores would uplift Malaysia’s trade balance and the ringgit.

Malacca Securities senior analyst Kenneth Leong shared a similar view, adding that China’s reopening has spurred retail investors’ interest.

“Two key beneficiaries from the reopening are the tourism and consumer sectors, as the market anticipates there will be a surge of Chinese tourists which will support the demand for spending on transport, hotels and retail,” he told The Business Times (BT).

In his report, UOBKH’s Khoo observed that some tech services providers and commodity-related counters will be among the beneficiaries, too.

This includes e-government solutions and service provider MyEG Services, industrial metal players Malaysia Smelting Corporation and OM Holdings as well as oil and gas company Petronas Dagangan.

He noted that MyEG – which has an exclusive tie-up with a Chinese state-owned enterprise that handles a big proportion of outbound traffic – stands a high chance of clinching the Malaysian government’s e-visa concession for inbound Chinese tourists.

Malaysian commodity-related sectors are significant indirect beneficiaries too, he added. “China’s anticipated economic recovery would be supportive of commodity prices, in particular for industrial metals, followed by crude oil,” he said.

Another winning sector of China’s reopening is real estate investment trusts (Reits), especially those related to retail and hospitality, said UOBKH analyst Yap Xiu Li in a separate note on Tuesday.

She noted that the defensive nature of Reits and the sector’s outperformance against the Kuala Lumpur Composite Index (KLCI) proves that high dividend-yielding stocks remain resilient.

“The sector’s forward yield of 6.3 per cent is decent despite rising interest rates. We do not expect Malaysian government securities to top 4.5 per cent, as the last time it exceeded that level was during the global financial crisis (in 2008 and 2009),” Yap added.

For Reits, UOBKH prefers the retail segment, particularly those with prime or niche malls for their proven business resilience. “Our top pick is Sunway Reit, as their malls and hotels would benefit from the influx of tourists,” said Yap. 

Ng Zhu Hann, the chief executive officer of boutique fund manager Tradeview Capital, said China’s reopening is positive for Asia amid concerns about the US Federal Reserve’s next moves on interest rates, the prospects of the US economy as well as the recession in Europe.

“The lifting of travel restrictions has served as a fresh catalyst to the Asia market including Malaysia, in which China was its largest trading partner for 13 consecutive years since 2009,” he told BT.

Ng added that listed technology companies which have exposure in the Chinese market are gaining momentum, such as Malaysia Pacific Industries, which owns a 6.7-hectare manufacturing plant in Suzhou.

He noted that as China’s market has reached its bottom and will rebound strongly, this will also catalyse the Asian market to move along.

“China’s market is too large to ignore. The country has been in 18 months of a downtrend. The reopening is great news that will benefit many regional countries,” he said.

Most of the stocks named by analysts saw their share price rise on Monday alongside the KLCI. However, the momentum appeared to slow down just a day later.

The KLCI opened 0.2 per cent lower at 1,490.4 points on Tuesday morning, and fell 0.6 per cent to 1,485.13 at the close of trading.

Commodity and oil and gas counters also saw their share prices trending up, albeit at a slower pace. Malaysia Smelting Corporation’s share price closed six sen higher at RM1.69, while Petronas Dagangan was up four sen at RM22.74.

Technology-related counters such as MyEG climbed two sen to 86.5 sen, while Malaysia Pacific Industries rose six sen to RM31.22.

Tourism-related companies like Malaysia Airports Holdings and Genting Malaysia continued to be the top gainers. At the close of trading on Tuesday, Malaysia Airports rose five sen to RM7.00, while Genting Malaysia remained unchanged RM2.80. Sunway Reit closed one sen higher at RM1.53.

The trading of consumer stocks was mixed. The share price of MyNews Holdings increased 1.5 sen to 70 sen, while Fraser and Neave Holdings was up by 22 sen to RM22.14.