Its head of Malaysia research, Ivy Ng, pointed out that four out of the last six market downturns, including the Asian financial crisis and the global financial crisis, saw it bottoming out in the third quarter of the year.
“Historically, the market tends to bottom out at three standard deviations (sd) below their historical mean and at this point we are close to the bottom,” she said in her shariah market outlook presentation at Bursa Malaysia’s Invest Shariah Conference 2022 today.
“We (at CGS-CIMB) expect the key index to end the year at 1,506 points, which translates to a 12.9x 12 months forward price to earnings (PE) ratio,” she said.
The FBM KLCI closed at 1,463.69 points today, down 5.53 points or 0.38% from yesterday’s close.
Amidst the gloomy outlook, Ng also sees some potential catalysts to bring the market out of its slump.
She said the return of foreign workers in the second half of the year could boost market sentiment and a potentially higher tourist arrival would lift some of the tourism-related stocks.
“This, combined with a possible resolution of ESG (environmental, social and governance) issues relating to forced labour in the fourth quarter, could help inflationary pressures to subside in the later part of the year,” she added.
Ng said that in terms of strategy, investors should take shelter in some of the defensive sectors, stocks with high dividend yield, stocks that would benefit from the rate hikes like banks and those that can benefit from the return of foreign tourists.
The head of research singled out Bank Islam, with a target price (TP) of RM3.48, MR DIY (TP: RM2.40) and Telekom (TP: RM6.75) as top picks among the shariah counters covered by CGS-CIMB.
She said analysis shows that Bank Islam is a beneficiary of the overnight policy rate (OPR) hike with a loan growth forecast of 8% compared with the industry average of 4% to 5%, while MR DIY is likely to benefit from down trading due to rising inflationary pressure.
On the other hand, the research house sees Telekom as a beneficiary of structural demand for fibre, data centres and cloud services.
On the economic front, Ng said CGS-CIMB expects Malaysia’s gross domestic product to expand by 6.2% in 2022 with Bank Negara Malaysia raising the OPR by another 25 basis point (bps) for the rest of this year with a 50bps rate hike in 2023.