CGS-CIMB sees investors treading cautiously this year due to Covid-19 variants

KUALA LUMPUR, Jan 21 — CGS-CIMB Research expects to see cautious trading among investors this year due to potential headwinds buffeting the markets, such as new Covid-19 variants.

In a research note day, it said the market would also likely be affected by foreign fund outflows due to the tapering by the United States Federal Reserve (Fed), reversals of fiscal stimulus, tighter monetary policy, return of intra-day short-selling, higher transaction costs for the trading of Malaysia shares, corporate earnings risks due to higher taxes, companies’ inability to raise prices, and political risks.

“However, the downside could be capped by expectations of stronger economic growth as Malaysia reopens international borders following the lifting of the inter-state travel ban since Oct 11, 2021,

“The market would also be supported by additional liquidity available for domestic institutional funds like the Employee Provident Fund (EPF) following the end of the various one-off withdrawal schemes under stimulus packages announced in 2020 and 2021, and given that the KLCI is trading at undemanding valuations,” it said.

For 2022, the research firm has listed five policy events that could shape the year, including the decision on the Single Wholesale Network model for the 5G network rollout; resumption of foreign workers intake; resolution to the allegations of forced labour issues in Malaysia; decision on the Mass Rapid Transit 3 project and allocation of digital banking licences.

“However, we advise investors to be nimble in their investment strategy as the market is likely to stay volatile.

“Our six key trading themes for 2022 are beneficiaries of overnight policy rate (OPR) hikes; value and laggard plays; recovery plays; electric vehicle plays; environmental, social and governance picks as well as high dividend-yielding stocks,” it added.

CGS-CIMB has also maintained its end-2022 KLCI target of 1,612 points.

“Key risks to our earnings projections are slower global growth, the inability of companies to pass on rising costs, higher taxes, shortage of foreign workers, rising trade risks and political uncertainties.

“Potential upside risks to earnings are better-than-expected commodity prices and the government reconsidering some of the new tax measures to reduce tax burdens,” it said.

Last year, it said the local benchmark index briefly touched its 2021 high of 1,640 on March 10, and fell to a low of 1,481 on Dec 14 due to concerns over the fallout from Budget 2022, the impact of Omicron on the reopening of the economy and relaxation of travel restrictions. — Bernama