Alpha Picks: Digging More Trenches
Our economic reopening-oriented Feb 22 Alpha Picks underperformed the FBMKLCI (+2.6% vs +6.3%). This month, we deploy a more cautious investment strategy to defend against the highly inflationary effect of Russia’s invasion into Ukraine, and the imminent upward march of the US interest rate cycle. Nevertheless, while our Alpha Picks are more defensive in nature, we continue to embrace selected border reopening beneficiaries and reasonably valued growth-oriented stocks.
WHAT’S NEW
• Market review: Uplifted by plantation sector amid stiff inflationary and monetary policy tightening headwinds. While the FBMKLCI gained 6.3% in Feb 22, which was primarily driven by plantation stocks as crude palm oi price flew into stratospheric levels, the index prematurely surrendered some of the gains as investors were spooked by Russia’s invasion of Ukraine. This stoked inflationary fears, which coupled with the expected global monetary policy tightening, triggered a selldown on previously outperforming stocks and in particular, loftily valued growth stocks. The worst-hit sectors were technology (lofty valuations) and gloves (earnings disappointments).
• Alpha picks underperformed the FBMKLCI. Our portfolio appreciated 2.6% mom in Feb 22, underperforming the FBMKLCI’s 6.3% gain. Best performers were CIMB (+8.6%) and Genting Malaysia (GENM, +7.6%) while VS Industry (VSI) dragged the portfolio, declining 5.7%.
• Turning defensive ahead of the US’s contractionary monetary policy. While the market has already anticipated the US Federal Reserve (Fed) to raise Fed funds by 25bp in its upcoming meeting on 15-16 March, there will be a follow-up of a barrage of rate hikes, while the Fed’s QE is predicted to end in March (beyond this, the Fed may de-leverage its bloated balance sheet). With the Russia-Ukraine situation aggravating inflationary expectations, we brace for a period of economic stagflation which points to an imminent consolidation of equities.
• Nevertheless, we still foresee upside for selected border reopening beneficiaries and event-driven growth stocks. Malaysia may reopen its borders as soon as April.
ACTION
• Mar 22 Alpha Picks: BUY Genting Malaysia, Heineken, MyEG, RHB Bank, TIME dotCom, and VSI. We remove Mr DIY, add Heineken and TIME dotcom, and replace CIMB with RHB Bank. Catalysts for our picks are elaborated below and overleaf. This month’s picks feature a line-up of high yielders (RHB Bank, GENM, Heineken and TIME) and border reopening beneficiaries (GENM, Heineken, MYEG). Besides this, most high yielders should outperform in a cautious market (refer to overleaf RHS table for the list).