Valuations are still enticing
Malaysia’s benchmark index-FTSE Bursa Malaysia KLCI equity index currently trades at a one year forward price to earnings (PE) ratio of 17x. In comparison, the MSCI Emerging Markets Index (EWM) trades at a PE of 15.3x while the MSCI Asia ex Japan Index (ASEA) trades at a PE of 15.2x. For a variety of reasons, Malaysian stock markets have room to rally even though their price to earnings multiple is slightly higher than their historical average.
“Valuations in general are not so demanding, for example, price to book value is still attractive although price to earnings is slightly above the long-term average. The situation is not so alarming,” said Danny Wong, CEO, Areca Capital. “We are still far away from a bubble although overdue for a retracement,” said Chris Eng, head of research, Etiqa Insurance and Takaful.
Stocks and sectors to bet on
Further, consolidation in the banking sector has led to analysts turning optimistic on growth in this sector. Overall experts are bullish on stocks in the consumer, tourism, technology and construction sectors.
To understand which sectors in Malaysia have performed best, we studied the portfolio of the KLCI Index. In 2017, the top three performing sectors in Malaysian equities have been:
1) Lodging
2) Diversified financial services
3) Banks
In 2017 so far, these sectors have surged 25%, 22% and 18% respectively.
Among other sectors, analysts are betting on defensives and consumer stocks such as Tenaga Nasional Bhd, QL Resources Bhd and IHH Healthcare Bhd.
Affin Hwang Capital Research listed out fifteen stocks as their top picks in Malaysia’s equity markets. Their top picks for 2017 are AirAsia, Bumi Armada, CIMB holdings, Gamuda, Genting, Inari Amerton, Kepong, KPJ Healthcare, Maybank, Petra Energy, Public Bank, Ta Ann, Tenaga, UOA Development and WCT Holdings.
 trades at a PE of 15.3x while the MSCI Asia ex Japan Index (ASEA). trades at a PE of 15.2x. Malaysian stock markets have room to rally even though their price to earnings multiple is slightly higher than their historical average.){kind=link}