SMALL to mid cap stocks under the FBM70 are holding firm and selectively, there is potential for higher gains.
Within this list, Karex, IJM, Kulim, YTL Power, Sunway REIT, Berjaya Sports, WCT and IGB REIT are among some of the stocks in spotlight.
Why Karex? News that the Zika virus can be sexually transmitted may spur demand for condoms manufactured by Karex, said Pong Teng Siew, head of research, Inter-Pacific Securities.
Stocks in construction, plantations and utilities are under the radar of Chris Eng, head of research, Etiqa Insurance & Takaful. Within these categories, Mitrajaya, Protasco, KLK, IOI Corp, Tenaga and Malakoff are also recommended.
“Most of these stocks in the construction, REITs and gaming sectors are fairly insulated from the global economic slowdown as they are in mostly domestic-centric businesses,’’ said Vincent Khoo, head of research, UOBKayhian.
Hong Leong Industries is another overweight stock by UOBKayhian.
Magni-Tech has also been highlighted for its surprisingly strong earnings for the second quarter of financial year ending April 30, 2016. The company earned a revenue of RM197.3mil, giving it a profit of RM21.6mil and earnings per share (EPS) of 19.9 sen.
This compares with the previous second quarter where it recorded lower revenue of RM162mil, profit of RM8mil and EPS of 7.0 sen.
Commodities-related stocks could be the next to watch out for, said Danny Ng, CEO, Areca Capital.
Under this category, he favours IOI Corp, Sime Darby, KNM and Muhibbah for mediul to long-term exposure.
Problems in the Chinese economy may spill over to Singapore banks which could experience massive capital outflows if China comes down with a “hard landing,” said the Singapore Business Review, quoting Swiss billionaire investor Felix Zulauf.
Zulauf expects capital outflows from China to continue, prompting regulators to further devalue the yuan.
When this happens, Asian economies which are heavily dependent on China, particularly Singapore, are likely to suffer as Chinese corporates will cut their imports while indebted Chinese companies are likely to be at greater risk of default.
“It is conceivable that Singapore, which has attracted a lot of foreign capital over the years because of its image as a strong currency state, will be extremely exposed to the situation in China.
Singapore’s banking sector loans have grown dramatically in the past five or six years,’’ Zulauf was quoted as saying. How will that impact Malaysian banks?
“Unless this oil price slump drags on for more than two years, I doubt if Malaysian banks will face similar issues,’’ said Pong, adding that there were no signs yet of oil and gas (O&G) related non-performing loans (NPLs) rising at local banks.
“I think local O&G players have reserves to see them through for a while,’’ said Pong.
But the suffering among O&G players may be prolonged for a period of time.
As long as oil price stays below US$50 per barrel, oil majors will still be losing money.
Services companies will be saddled with so many assets that they cannot make money and they will be bidding for jobs at below cost.
Singapore’s OCBC is concerned that all its net new NPLs last year were from the O&G segment.
Its NPLs, as a ratio to all loans, rose to 0.9% from 0.6% a year ago, said the Singapore Business Times (SBT).
The bank’s total oil-and-gas portfolio stood at S$12.4bil, or 6% of total customer loans.
Of this, 47% comprised loans to offshore support services.
This amounted to S$5.8bil in loans to these upstream companies, which are more vulnerable at a time of low oil prices.
“That 47% is under more stress than the remaining,” OCBC chief Samuel Tsien was quoted as saying.
Of these, 14% or just over S$800mil, have been classified as NPLs.
UOB’s outstanding loans to upstream industries made up S$3.8 billion or 49% of its S$7.7 billion in total O&G lending.
Its O&G lending accounted for 3.6% of total loans. UOB chief Wee Ee Cheong was quoted as saying, and that if oil prices stayed low, 20% of the bank’s S$12 billion O&G exposure may show weakness.
DBS said in its third-quarter results that S$9 billion of its O&G exposure, or 40% of the total S$22 billion, belonged to the support-services segment.
This is not directly comparable, since exposure goes beyond lending and includes off-balance sheet items, said SBT.
Is the US stockmarket looking like last October which was a good month for stocks?
The minor upturn in the Dow Jones that began on Feb 12 may be the start of an October-like rally following an early-year free fall.
The S&P 500 is still down about 6% for the year, but it’s up nearly 5% since Feb 11, and panic selling from January seems to have subsided, said Rick Newman in Yahoo Finance.
What may be different now is the balance of factors within China that investors are looking at.
Last August when the US stockmarket plunged, markets in places like Shanghai and Shenzen were the primary focus, as a historic bubble appeared to be bursting.
Today, investors are focusing more on the yuan. There’s a parallel to the last fall in August, said Newman.
China allowed the value of the yuan to drop sharply against the dollar last August, surprising markets and contributing to the sell-off in Chinese shares.
The yuan then stabilised through the October rally.
The yuan’s value began to decline again in December, leveling out by late January. It has since strengthened slightly.
Oil is the other key variable. Super-low oil prices raise the risk of widespread defaults in the US energy industry, a problem that could spread to banks and other firms on the hook for billions in loans to energy firms.
Also, the relentless plunge in oil prices suggests there are weaknesses somewhere in the global economy that are worse than believed, said Newman.
West Texas crude prices hovered between US$45 and US$50 last fall, considerably higher than the US$32 range they’re in now.
But some analysts think oil has bottomed out and is poised to enjoy modest gains through the year.
If that’s true, an October rally may have begun a few days ago and be poised to carry into March and April, said Newman.
Columnist Yap Leng Kuen hopes the spiral effect from low oil prices and slowdown in China do not do too much harm to Asian banks.