Malaysia Monthly Wrap-up For Feb 2018

■ KLCI was relatively unaffected by the sell-down in global markets as it fell by only 0.7% mom in Feb. The KLCI also outperformed the broader market and small caps.
■ It also outperformed MSCI Asia Pacific ex-Japan index (MXASJ), which fell 5% mom.
■ March has been a positive month for the Malaysian market over the past eight years.
■ Investors will focus on FOMC meeting, GE14 newsflow and BNM report in Mar.
■ Positive on measures to boost market vibrancy but neutral on the just concluded 4Q17 results season. Maintain KLCI target of 1,880 points.

 Comparing KLCI performance against regional peers since Jan 2017:

Feb: A volatile month for the Malaysian market
Malaysian and global markets witnessed some corrections at the start of Feb. As a result, some key markets ended giving up some or all the gains achieved in Jan. However, KLCI rebounded from its lowest point of 1,812 on 6 Feb, and ended the month down by only 12 points (or 0.7%) mom to 1,856, keeping its YTD gain of 3.3% relatively intact. The KLCI also outperformed the broader market and small caps for the second consecutive month. It also outperformed the MSCI Asia Pacific ex-Japan index (MXASJ), which fell 5% mom.

What sparked the volatility in global markets in Feb?
The correction in the Malaysian and global markets in early Feb was sparked off mainly by the plunge in the Dow Jones Industrial Index (DJIA) by 1,175 points (or 4.6%) on 5 Feb 2018. The trigger for the market correction in DJIA in early Feb was due to a sell-off in the US bond market.

Finance index gain offset by losses in other key indices
The KL finance index rose 2% mom and was again the best performing sector in Feb 2018, riding on Bank Negara’s move to raise the OPR by 25bp to 3.25% on 25 Jan 2018 as well as a relatively good set of 4Q earnings. However, the construction and industrial indices fell by 5-6% mom in Feb 2018.

New initiatives to boost market vibrancy were revealed in Feb
In Feb, the market was positively surprised by several initiatives announced by Malaysia to stimulate vibrancy in the local market. Key measures include allowing intraday short selling for all investors, liberalising the margin financing rules and establishing Malaysia- Singapore Connect. Four out of the six measures are effective 1 March 2018. We are neutral on the recently concluded 4Q17 results season which saw an improved earnings revision ratio, but this was offset by a downgrade in 2019 earnings growth projections.

Key highlights for March: FOMC meet, GE14, BNM Annual Report
Mar has historically been a positive month for the Malaysian market in the past eight years but over the longer of 40-year period, it achieved average mom loss of 0.2%. We expect KLCI to track the performance of the regional markets in Mar. All eyes will be on the FOMC meeting on 21 March (where the Fed is expected to raise rate by 25bp) and release of Bank Negara Annual Report at end-March. Investors will also continue to look for hints on when the 14th General Elections (GE14) will be held.

Westports Holdings replaces Malaysia Airports as top three picks
We maintain our end-2018 KLCI target of 1,880 pts which is based on 15.9x 12M forward
P/E. We refreshed our top three picks following the recent downgrade of Malaysia Airports to a Reduce. Our revised top three big-cap picks are Axiata, Westports and Dialog. Our preferred small cap picks are CCK, Berjaya Food and Bonia.

source: CIMB Research – 02/03/2018