Local stock market to be lukewarm at best post-Budget 2018, say analysts

PETALING JAYA: The lack of “earth-shattering measures” in Budget 2018, is to keep the local stock market lukewarm at best with players expected to refocus on external developments, such as US tax reform, Federal Reserve interest rate increase and crude oil prices, say analysts.
“The market may still suffer from lacklustre corporate earnings and lack of forceful theme which will cap market’s upside. That said, downside is now protected by ample domestic liquidity as foreign selling abates,” Hong Leong Investment Bank (HLIB) Research said in its note on implications of Budget 2018 on the benchmark FBM KLCI.
The research firm still expects the FBM KLCI to move slightly higher towards year-end on decent domestic data amid strong tendency of year-end rally. Its 2017 year-end FBM KLCI target remains unchanged at 1,760 (16x 2018 earnings per share). It closed at 1,746.13 points on Friday.
Its top picks are Malaysia Airports Holdings Bhd, Genting Bhd, Malayan Banking Bhd, Sunway Bhd and Tenaga Nasional Bhd for the big caps, while it favours DRB-Hicom Bhd, George Kent Bhd, Lay Hong BHd, Pecca Group Bhd and Rohas Technic Bhd for the small and medium capitalisation companies segment.
“We are mildly positive on 2018 Budget on (i) government’s commitment to maintain economic resilience by raising disposable income and promoting investments; and (ii) wideranging measures to benefit broader economy,” it said.
Meanwhile MIDF Research said it expects market reaction towards Budget 2018 to be measured considering that it only provided a few material surprises that may attract only targeted buying interest in the equity market.
The research firm judged the impact of the Budget 2018 on the FBM KLCI by focusing on the heavily weighted sectors of banking, telecommunication, plantation, oil and gas and utility. It concluded that only the banking sector is to see a mildly positive impact from the “step-up” financing measure which is now extended to private developers. It was previously only for PR1MA projects.

“Despite the not too exciting 2018 budget, we foresee the FBM KLCI regaining its upward thrust during the closing months of 2017 to be propelled by (i) resumption of earnings recovery in 4Q17, and (ii) improving forward earnings expectations, respectively underpinned by continuing macro improvement and macro resilience,” the note released on Saturday said.
It reiterates its FBM KLCI 2017 and 2018 year-end targets of 1,830 and 1,900 points respectively.