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KUALA LUMPUR (March 23): After a fortnight of relentless sell-offs in equities, MIDF Amanah Investment Bank Bhd Research has found that equity prices and valuations are now becoming very attractive.

In a thematic report today, the research house said despite the recent increase in new Covid-19 cases outside of China, its baseline scenario is that the outbreak will be brought under control within the next four to six months, similar to the time it took for China to bring new Covid-19 cases under control as well as the amount of time it took for the severe acute respiratory syndrome (SARS) outbreak in 2002 and 2003.

“Thus, the equity market would be trapped in a cautious mood or even occasionally under extreme risk aversion perhaps until the third quarter of this year. However, as the total number of infected cases begins to dwindle, we envisage the equity market shall thereafter regain some upward momentum together [with] the tapering of risk aversion among investors,” it noted.

It added that if the market were to perform such as in the 1987 selldown in the absence of an ensuing outright recession, the equity market would thereafter establish the means for a gradual upward march.

As such, for the final quarter of 2020, the research house is forecasting that the additional financial liquidity and outlays provided by governments to address the ongoing viral outbreak will propel a recovery for global equity markets, with the FBM KLCI scaling towards 2020 baseline target of 1,480 points.

That being said, MIDF Research noted that while equity markets will recover from current levels, it is aware that markets are now extremely volatile at this point of time.

It noted that gyration of approximately 5% or more in either direction seems to be the norm, for now, presenting a precarious situation for investors to navigate.

“We believe that there are pockets of opportunities for investors to take advantage of despite the volatile market. This is especially so given the significant retracement in share prices.

"However, we also advise caution for investors. We believe that investors would need to select potential stocks which have solid fundamentals and defensive earnings in nature. Furthermore, this should be paired [with] those that give very attractive dividend yields, which should moderate any downside risk,” opined MIDF Research.

Among the research house’s top buys are British American Tobacco (M) Bhd (BAT), Pharmaniaga Holdings Bhd and MMC Corp Bhd.

BAT, which has been assigned a target price (TP) of RM16 and a “buy” call, has a seen a decline in its share price. As such, MIDF Research believes the risk-reward profile for the stock has become more attractive as it has a yield of more than 10%. The research house also believes that there might be a possibility that BAT’s parent company could take it private given its current depressed valuation.

For Pharmaniaga, which has a “buy” call and RM2.35 TP, the research house viewed that both its concession and non-concession businesses will see strong sales growth, especially in the current context where the Ministry of Health will be increasingly reliant on its support and expertise in preventing a shortage of essential medical supplies.

In the case of MMC Corp, given that the global shipping company maintains a 30% stake in the Port of Tanjung Pelepas (PTP), the shipping company will make sure to maintain the port as its regional transshipment hub in the wake of Covid-19.

“It is also notable that MMC Corp’s ports other than PTP such as Johor Port [and] Penang Port have a high concentration of gateway cargo of more than 90.0% of total container throughput. The increasing prevalence of intra-ASEAN trade following the emergence of regional distribution hubs in ASEAN, especially Malaysia, will bode well for these two ports,” said MIDF Research, which has a “buy” call and RM1.27 TP on MMC Corp.

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