Investors may want to lookout for transport and logistics counters as well as cyclical stocks such as banking and oil and gas (O&G) during the prolonged lockdown period which look set to compromise earnings prospects amid heightened political risk.
As all economic sectors are expected to be fully opened only by December, Malacca Securities Sdn Bhd head of research Loui Low said stocks related to courier services would benefit investors given that consumers are still not able to do physical shopping activities.
“Given the lockdown, I think it would be best for investors to go towards transport and logistic companies, and plastic-related firms because during this period plastic usage will increase due to online shopping services that require packaging of items.
“The same structure also applies to transport and logistic companies where shops would have to use courier services to deliver the online orders,” he told The Malaysian Reserve (TMR) recently.
Bank Islam Malaysia Bhd economist Adam Mohamed Rahim picked cyclical stocks such as banking, consumer and O&G for investors to lean towards during the lockdown.
“This is as the economy gears up for a recovery provided that business activities ramp up post-lockdown somewhere in the fourth quarter of the year,” he told TMR.
Crude oil price has risen above US$73 (RM303) a barrel last week on expectation of improving demand amid controlled supply.
Fitch Ratings, however, warned asset quality visibility for banks in the region will remain clouded into 2022 as loan relief schemes have been extended and this is likely to keep credit costs high in the near term.
The firm added normalisation of credit costs may take longer in markets, where relief has been extensive, but economic outlooks remain under pressure such as in Malaysia and Thailand.
Fitch expects non-performing loan (NPL) ratios to peak only after 2021 when relief measures expire, but many banks have booked higher credit provisions in 2020 before the rise in NPLs.
Adam said the extension of full-scale lockdown to extend beyond June 28 will see the FTSE Bursa Malaysia KLCI (FBM KLCI) trade below 1,600 points as corporate earnings may likely be impacted due to restricted working capacity.
Although Bursa Malaysia anticipated retail participation to drive trading on the stock market this year despite high volatility in the marketplace, both analysts had mixed reviews on the growth of retail participation this time around.
Low said unlike the first Movement Control Order (MCO 1.0) last year, the stay at home order under the current lockdown would not contribute to higher market participation from retailers mainly because they have made investments during MCO 1.0.
“Retail participation will continue to stay sideways because I do not see a lot of new funds coming in since we have the lockdown imposed. Bear in mind that this lockdown is not as strict as MCO 1.0 because more people are actually working,” he said.
He added the investments made by retail investors during MCO 1.0 last year also would be a hindrance for them to pursue more trading in the coming weeks or quarters because not many of them recorded profits during the period.
“Mainly between 50% and 70% of retailers that participated have burnt their money down the road and only a handful of them survived,” added Low.
Low expects the average daily trading value to hover below RM4.5 billion for the rest of the year and will be correlated to the vaccination rate, the number of daily infections and political developments in the country.
The heightened trading activity among retailers during MCO 1.0 was also driven by value investing after the market had corrected sharply following the breakout of the Covid-19 pandemic. That is not the case with this recent MCO with valuation now more reflective of the stock fundamentals.
Adam noted retail investors’ share of overall value in the local bourse has remained above 30% since April last year, coinciding with the start of MCO 1.0 implemented in March.
Retail participation may inch higher this month due to the full scale lockdown given that its overall value stood at 38.2% in May.
“Aside from that, the FBM Small Cap Index has gained by more than 2% since June 1, 2021, signalling the increased activity of retail investors,” he added.
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