Kenanga said the market will continue to be plagued by a lack of conviction to buy and, to a certain extent, to sell, similar to 1Q FY23.
In a research note today, Kenanga expects the 2Q FY23 scenario to pan out like that of 1Q FY23. It said that investors globally are on the lookout for signs of inflation finally being reined in.
Its top sector picks for 2Q FY23 are telcos, banking, construction, retailers, and automotive makers and distributors. During the last quarter, in comparison, the top sectors were property, transport, construction and energy.
First on its list of frontrunners are telcos, with Bursa Malaysia’s telecommunications and media index registering a 1.2% gain while the FTSE Bursa Malaysia KLCI (FBM KLCI) slipped 5.7%.
It said “the telco sector could also be poised for a major re-rating if the new government is to review the current single wholesale network model for the 5G rollout (to promote competition and innovation) or revise the existing terms to the advantage of the mobile network operators.
“We believe telco stocks will continue to do well in the second quarter of calendar year 2023 (2Q CY23), repeating their performance in 1Q CY23.”
Interestingly, the research house is still bullish on the banking sector, maintaining its overweight call, adding that the sell-down of banking stocks in 1Q FY23 – following the banking crisis in the United States and Europe – was unjustified.
Kenanga also expects re-ratings across the construction sector as more public projects led by flood mitigation and MRT3 are rolled out. It also maintained its FBM KLCI target of 1,610 points for the end of FY23.
Moving forward Kenanga added that “Complicating the situation are mixed signals from the continued strength in the US economy (especially, the labour market and, to a certain extent, consumer spending), and the recent banking crisis in US and Europe.
“Locally, while the new government continues to advance its policy reform agenda in favour of a more progressive, pro-consumer, pro-competition and free-market approach, it will do so at a more measured pace and subtle way, ahead of the six state elections that are widely expected to be held in June 2023.”
The research house said that with the state elections around the corner it does not expect announcement of major policy reforms, particularly, those with regards to the rationalisation of fuel and electricity subsidies.
“Should there be a well-thought out subsidy rationalisation plan, leading to an improvement in the government’s fiscal position, it could spark a re-rating of the local market.” it said.
Kenanga expects things to play out like 1Q FY23, with the exception of the one-off boost from China’s reopening that benefitted the energy, REIT, and transport sectors in 1Q FY23 that will wear out in 2Q FY23”.