Market leaders of 2023

 Energy, resources, industrials

TA Securities says these stocks are top winners and losers of GE15 — depending on who forms Govt

 Analysts have named the big winners and losers of the 15th general election (GE15), depending on which coalition forms the Government.

In a research note, TA Securities said if Pakatan Harapan (PH) — which won the most seats at 82, falling short of the 112 simple majority — forms the government, sectors that will likely be positively impacted are consumer, and power and utilities.

"Domestically focused retailers should benefit from incentives to support the lower-income households. Key consumer-related pledges include i) targeted PTPTN loan forgiveness for B40 households; ii) continuation of [the] Bantuan Sara Hidup programme to help overcome cost of living; iii) minimum wage policy plan.

"Additionally, F&B firms involved in farming such as Farm Fresh [Bhd] and F&N (Fraser & Neave Holdings Bhd) may benefit from tax cuts for investments in the farming sector," it said, adding that its top beneficiaries for the consumer sector were Aeon Co (M) Bhd, Padini Holdings Bhd, and Focus Point Holdings Bhd.

Meanwhile, the power and utilities sector is poised to benefit from more tender opportunities for renewable energy (RE) projects, as PH has pledged to increase investments in the area to ensure that 50% of the country's total primary energy supply is derived from renewables. The party has also pledged to support green projects and ensure that 20% of 10,500 public premises will be given allocations for smart energy and RE installation projects as part of large-scale infrastructure expenditure.

"In particular, this will benefit smaller companies with existing marginal RE capacity and smallish earnings base such as Ranhill Utilities [Bhd] and Cypark Resources [Bhd].

"On the flip side, larger companies with significant existing capacity will not benefit meaningfully in terms of earnings and overall portfolio expansion. This is because at this current juncture, large-scale solar plant tenders in Malaysia merely offer maximum capacity of up to 50MW each.

"Nevertheless, such companies will still benefit from enhancement to their environment, social and governance (ESG) ratings. On a separate note, incentives for private premises to switch to solar will boost demand for TNB’s ongoing GSparx programme and Malakoff [Corp Bhd]’s rooftop solar business. Expansion of these environmentally friendly businesses are expected to prop the companies’ ESG profile, although earnings contribution remain muted at this juncture," it said.

Meanwhile, a government led by Perikatan Nasional (PN) — which won 73 seats — will also bode well for consumer stocks, said TA Securities, but it cautioned that brewers Carlsberg Brewery Malaysia Bhd and Heineken Malaysia Bhd could be the top losers.

"We expect the consumer sector, especially domestically focused retailers, to benefit in the short to medium term due to allowances, tax benefits, and job opportunities pledged by the coalition.

"Some of the key consumer-related measures promised include i) [increasing the] cost-of-living allowance by RM100 and special salary increment of RM100 for civil servants; ii) new tax exemption category for sports equipment, gym membership and other healthy lifestyle expenses of up to RM3,000; iii) creating one million high-income jobs in the digital economy sector within five years; iv) PTPTN repayment discounts of 25% for graduates with a second class or upper degree.

"Despite not being mentioned in the coalition’s manifesto, we reckon breweries may take a hit as there may be a possibility of limitations in brewery sales or restrictions of night clubs and other entertainment outlets," it said.

Notably, PAS is a component party of PN and has won 49 parliamentary seats.

Meanwhile, a PH-led government could negatively impact the building materials, construction, and telecommunications sector, said TA Securities.

"There is a possibility that the new Government will review the costing structure and the alignment of the MRT3 project given that it has yet to be awarded. However, we believe ongoing projects such as LRT3, Pan Borneo Highway, and East Coast Rail Link are likely to proceed as planned.

"Meanwhile, aside from the allocation to basic infrastructures such as water facilities, roads, hospitals, and schools, we do not expect any new launching of mega infrastructure projects in [the] near term as a PH government is likely to focus on fiscal consolidation. On the other hand, a PH government is likely to review all the highway concession agreements," it said, adding that the top losers for the sector were Gamuda Bhd, IJM Corp Bhd, Sunway Construction Bhd, and TRC Synergy Bhd.

The big losers in the building materials sector are Ann Joo Bhd, CSC Steel Holdings Bhd, and Cahya Mata Sarawak Bhd.

TA Securities said it expects a short-term negative impact on telcos as a PH-led government will most likely review the 5G rollout via the single wholesale network (SWN) model.

"Pending clarity on its stance for 5G rollout (e.g., to maintain deployment via the SWN model, to allow a dual wholesale network, or to allow individual deployment by mobile network operators), we expect returned uncertainty on this front to cast an overhang on the telecommunications sector valuations.

"We imagine that a decision for the incoming government will not be straightforward e.g., if it decides to deviate from the SWN model, it also has to consider the potential legal and financial implications to the country. That said, we expect investors’ confidence in the telecommunications sector to be restored once the dust has settled.

"While there are several possibilities, in the instance the SWN model is replaced with individual deployment, we view winners to include incumbent mobile network operators, namely Axiata Group Bhd's Celcom Axiata Bhd, Digi.Com Bhd, and Maxis Bhd. We expect their dominance in the mobile space and financial strength to provide them the upper hand in 5G rollout and thereby, reinforce their competitive edge against smaller peers like U Mobile, unifi mobile, and Yes.

"However, this would assume eligible termination of the access agreements signed between Digital Nasional Bhd (DNB) with most of the telcos including Axiata, Digi, U Mobile, Telekom Malaysia Bhd (TM), and Yes. Top Losers: As for losers in the event the SWN model is done away with, we view them to include TM as it would potentially derail its fixed mobile convergence efforts and fibre leasing agreement with DNB," it said.

notes from talk: What's Next after GE 15 ?

 What's Next after GE 15 ? (Phillip Capital)

Notes:

- Russia can continue enduring the war probably into whole of 2023

- China won't reopen from COVID until at least 1Q23

- China won't attack Taiwan, at least until 2024

- inflation pressure to weaken 

- US unlikely to face stagflation

- MYR-USD weakening has bottomed

Black swan- solar flare

 

-

even more outlook 2018

Buy:
- UK
- GBP
- Japan
- Europe
- defense ETF ITA
- mining commodities
- zinc as predictor
- slv, copper


Risks:
- US midterms 2018
- US elections 2020
- indexing bubble

more outlook 2018

2018 places to invest:
- small cap value
- precious metals
- Asia tech
- EM

Risks in 2018:
-ECB liquidity pullback 2018 sep
- Catalonia exit
- Fed rate rise more than expected

outlook 2018

Continuing strong economic and earnings growth and still-low inflation should keep overall investment returns favourable but stirring US inflation, the drip feed of Fed rate hikes and a possible increase in political risk are likely to constrain returns and increase volatility after the relative calm of 2017:

• Global shares are due a decent correction and are likely to see more volatility, but they are likely to trend higher and we favour Europe (which remains very cheap) and Japan over the US, which is likely to be constrained by tighter monetary policy and a rising US dollar. Favour global banks and industrials over tech stocks that have had a huge run.
• Emerging markets are likely to underperform if the $US rises as we expect.
• Commodity prices are likely to push higher in response to strong global growth.
• Low yields and capital losses from a gradual rise in bond yields are likely to see low returns from bonds.

The main things to keep an eye on in 2018 are:

• The risks around Trump – the Mueller inquiry and the mid-term elections. We don’t see the Republicans impeaching Trump (unless there is evidence of clear illegality) but he could turn to more populist policies such as a trade war with China, a spat over the South China Sea or a clash with North Korea to boost his support.
• How quickly US inflation turns up – a rapid upswing is not our base case but it would see a more aggressive Fed, more upwards pressure on the $US, which would be negative for US and emerging market shares and a rapid rise in bond yields.
• The Italian election – the anti-Euro Five Star Movement is likely to do well and, even though it’s hard to see them being able to form government, this could cause nervousness;
• Whether China post the Party Congress embarks on a more reform-focussed agenda resulting in a sharp decline in economic growth – unlikely but it’s a risk. 

Source:

Dr Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital

3 stocks sectors that will win in the Fed's great balance sheet unwind

1. Healthcare
2. US small caps
3. Europe

-Stephen McBride

3 Black Swans

1. Yellen overshoots
2. ECB runs out of bullets
3. Chinese debt meltdown

- John Mauldin

How the yield curve forecasts recession

Very steep yield curve - inflation is likely to accelerate
Inverted yield curve - predicts coming recession
When inversion ends and begins to steep again - economic recovery, great time to buy bonds

- Rob Insana , Message of the Markets

Note: this warning sign may have become surpressed under the Fed's artificial low interest rate policy

Franklin Templeton Investments market outlook 2H2017

Developed markets : 

-potential negative long-term challenges on the horizon for equities 

Emerging markets :

- India, Indonesia, Brazil,Argentina and Colombia 

- more consumer-driven and technology sectors

3 Rules of Thumb for Policymakers

3 Rules of Thumb for Policymakers - Ray Dalio

1. Don't have debt rise faster than income
2. Don't have income rise faster than productivity
3. Do all that you can to raise your productivity

10 Causes of Major Stock Market Crashes

10 causes of major stock market crashes:

• political events 
• government actions
• war, terrorist attack
• currency crisis
• credit crisis
• debt defaults
• bank failures
• commodity price crisis
• stock crashes in a major market becomes contagious
• technical (flash crashes)

Many of these events cannot be predicted. These events can happen anywhere in the world. Global markets are now highly correlated. Thus, to avoid these black swans with certainty, you'd have to be out of the market most of the time. 

Hence, an investor should stay invested and the safest way to invest is by value investing.

Here's 2 Things Which Could Upset the Malaysian Market

Potential black swans for Malaysia in 2017, according to James Hay (Pangolin Investment):

1. terrorist attack
2. rising interest rates

overconnected

Key takeways from the book Overconnected by William H. Davidow :

• connectedivity created new business models (e.g. railroad, internet)
• overconnectivity can cause instability from positive feedback 
• overconnectivity can cause vulnerability from overspecialization
• complex systems are at risk of accidents and contagions
• overconnectivity was a factor in the collapse of Iceland and the subprime crisis
• need to reduce the positive feedback (e.g. through regulation), design more robust systems and restructure overconnected systems

ICAP AGM/Open Day 2016

Notes:

• not good outlook for O&G, property
• not keen on USD beneficiaries (short term)
• cash as call option
• clean energy and electric/driverless cars (Tony Seba)
• entrepreneurship is tough in Malaysia (different from independent business operator)
• use heart-mind to make decision (Mencius)
• opium trade benefited US (e.g. funded ivy league universities)
•  Trump to win elections (disastrous policies)

Ten Golden Rules of Equity Investing

Ten Golden Rules of Equity Investing

1. treatment of minority shareholders
2. Remember that companies are about peple not assets
3. Balance sheet strength is crucial
4. Understand what you are buying
5. Be wary of overambition
6. Think long term
7. Benchmarks are measuring devices not portfolio construction tools
8. Take advantage of irrational behaviour
9. Do your own research
10. Focus on growth industries in which it is possible to have a sustainable competitive advantage

Hugh Young, Aberdeen Asset Management

end of high returns?

For over 40 years, asset returns and alpha generation from penthouse investment managers have been materially aided by declines in interest rates, trade globalization, and an enormous expansion of credit – that is debt. Those trends are coming to an end if only because in some cases they can go no further. Those historic returns have been a function of leverage and the capture of “carry”, producing attractive income and capital gains. A repeat performance is not only unlikely, it is impossible unless you are a friend of Elon Musk and you’ve got the gumption to blast off for Mars. Planet Earth does not offer such opportunities.
-Bill Gross

undervalued and overvalued assets

undervalued asset classes  -  emerging market equity, Asia ex-Japan equities, emerging market debts, US and global high-yield bonds and European asset-backed securities.
overvalued assets - government bond asset classes such as those from Germany, Japan, the UK and the US.
-  HSBC Global Asset Management

Investment strategies in Asia if Trump triumphs

Nomura highlights some investment strategies to adopt if Trump makes it to the White House.

1) FX strategy

Direct risks to foreign exchange in Southeast and South Asia are likely to be less severe than in Northeast Asia, says Nomura.

In Asia, Nomura recommends being short Chinese yuan and Korean won, and long Indonesian rupiah and Malaysian ringgit.

“We believe the impact on IDR and MYR would be more contained, given robust growth, relatively favourable political and policy developments and bond inflows into both countries,” Nomura says.

2) Rates strategy

Nomura believes a Trump victory is likely to make central banks shift their bias further towards easier-for-longer policies.

“In such an environment we expect investors to focus on high-quality carry trades where an idiosyncratic domestic story is favourable for local rates,” Nomura says.

This would benefit rates market in Korea, India, Malaysia and Australia, while Hong Kong and Singapore are likely to underperform US rates.

“As far as trade recommendations are concerned, we believe receive 3yr MYR NDIRS; long 7yr MGS; long 7yr IGB; receive AUD 2yrfwd1yr IRS; receive KRW 3yr; and receive THB 5yr positions would perform,” says Nomura.

“We would express our view of HKD and SGD rate underperformance via pay HKD 5yr vs USD 5yr and pay SGD 2yr vs USD 2yr positions,” it adds.

3) Equity strategy

If Trump becomes president, Nomura says “an initial negative reaction in equities” is likely, but the longer term impact on equities beyond that is unclear.

China, Korea and the Philippines are likely to be most affected, followed by India, Singapore and Indonesia in the next group, and the least impact seen in Thailand and Malaysia.

“Specifically, we would expect our Asia Arms Race basket (rising risks of confrontation in the region), defensive stocks in Thailand and Malaysia (markets least impacted), and higher-yield stocks (to the extent that a Trump presidency contributes to lower global yields) to outperform,” says Nomura.

“Longer-term, downsides to growth and rising uncertainty in policy would imply a further flattening of our expected trend for Asian equities over the next 12-24 months,” Nomura adds.

8 market predictions for 2H2016

2H2016 in eight predictions by DBS Chief Investment Officer Lim Say Boon

1) Brexit will not break the EU but it will be negative for European stocks.
2) The global economy will continue to struggle and a corporate earnings recession will spread.
3) A decline in US corporate earnings will inevitably take the Standard and Poor’s 500 Index down with it.
4) The Bank of Japan will have to unleash further stimulus because a strengthening yen is bad for the economy and corporate earnings.
5) China will continue to ease.
6) Asia ex-Japan stocks will outperform global equities because their dividend yields are higher.
7) Lim is negative on the US dollar and believes that commodities and gold will rise, given the global central banks are in easing mode.
8) Bonds will continue to outperform equities.