Consumer, banking and tourism sectors to watch
SOME consumer, tourism and hospitality-related stocks have been on a tear over the last few months, as investors expect these industries to recover should vaccination programmes prove to be the elixir to the pandemic.
This was despite stock markets around the world taking a dive after the United States Federal Reserve (Fed) hinted that the first interest rate hike could come faster than expected.
The Fed is targetting at least one rate hike in 2023, and another five in 2024 after the central bank upped its gross domestic product (GDP) estimate for 2021 to 7%.
The unprecedented outbreak of Covid-19 in 2020 and the measures put in place to curb its spread hit the tourism and hospitality sectors the hardest.
A good indicator is the airline industry, which lost a lot of money last year.
In the US, investors are hoping for a return to domestic travel, driven by vaccine rollouts and a slowdown in lockdowns.
American Airlines’ stock has jumped 49% since the beginning of the year, while United Airlines has gained 30%, Delta Air is up 15% and Southwest Airlines has risen by some 23%.
Back home, the local stock market has been on a downtrend since the beginning of the year.
The benchmark FBM KLCI is down more than 3% year-to-date, closing at 1, 571.09 points yesterday.
Some of the tourism-related stocks have outperformed the index. Shares in AirAsia Bhd have risen more than 5% since the start of the year, while Genting Bhd is up 13.4% and Berjaya Corp Bhd skyrocketing 52% this year.
Meanwhile, Avillion Bhd, a hotel operator, saw its share price double from eight sen on May 31 to 17 sen on June 11, a day before the National Recovery Plan (NRP) was announced.
Although these industries are unlikely to be fully operational by November, an analyst says the NRP provides a clear path of recovery for the economy.
“However, political uncertainties have affected the market sentiment.
“Retail participants have also declined compared to last year, as more investors are looking for clarity on the benefits of the NRP to the economy, ” the analyst adds.
Rakuten Trade Sdn Bhd head of equity sales Vincent Lau reckons that investors have already been looking at recovery-related stocks such as banking, oil and gas, plantation and tourism.
He expects the stock market to pick up pace in the third quarter of this year as the recovery stage of the NRP takes place.
“Despite having a clear roadmap from the government’s plan to fully open the economy by the end of October, there are still uncertainties, especially on the number of daily infections, ” he says.
On a more positive note, he adds, “Overall, it is a good roadmap and the opening of the economy could be sooner than expected.”
RHB Research analyst Soong Wei Siang expects consumer spending to recover sooner than expected in the second half of this year driven by a ramp-up in vaccinations from the third quarter onward.
“Considering the current ultra-low interest rate environment with the overnight policy rate expected to be maintained at 1.75% for the rest of 2021, coupled with the assistance packages rolled out by the government, we think consumption will continue to be supported, ” he says in a report.
Soong reckons that there are more opportunities in the small to medium-capitalised companies. But large caps have their attraction as well.
“The larger-cap consumer names have strong defensive qualities which make them better positioned to mitigate against near-term market risks, ” he adds.
Among his top picks for consumer counters include MR DIY Group (M) Bhd, Guan Chong Bhd, MyNews Holdings Bhd, Berjaya Food Bhd and Leong Hup International Bhd.
But Kenanga Research expects the retail sector to remain under some level of stress.
The research house points out that in the near term, consumer activity would continue to be weighed by the tightened mobility restrictions and the closure of non-essential services.
“Nonetheless, we believe the impact would be less severe as consumers and businesses are more prepared with a greater shift towards online sales platforms, ” it says, adding that the situation is expected to gradually recover as the nation shifts to phase two and phase three of the NRP.
CGS-CIMB expects investors to shift their portfolio in favour of recovery stocks in the period leading to the third phase of the recovery and Budget 2022.
“The government revealed that it will have a supply of 16 million more doses of Covid-19 vaccines by end-July.
“When added to the current vaccine supply in the country of around 7.6 million doses, this means it will have at least 23.6 million doses of vaccines, sufficient to vaccinate 11.8 million people or 45% of the target population of 26 million to achieve herd immunity.
“If these targets are successfully met, we expect investors to shift their portfolios in favour of recovery stocks, ” it said in a note to clients.
Among its top picks are Malayan Banking Bhd, Genting Bhd and Malaysia Airports Holdings Bhd.
It added that Malaysia could potentially hold elections in Sarawak, which is due in September, and also the 15th General Election if the current political impasse is not resolved.