PETALING JAYA: Malaysia’s defensive market is likely to draw in more foreign inflows, given its limited trade and business ties with Russia and Ukraine, as well as its robust commodity-centric industries.

       In the short run, brokerage firms expect foreign portfolio interest to be elevated with a focus on defensive sectors.

       RHB Research said these sectors include “consumer, healthcare, utilities, basic materials, real estate investment trusts (REITs) and resilient high dividend-yielding stocks”.

       Likewise, TA Research sees more possible foreign inflows driven by booming commodity prices and cheaper Malaysian equities.

       Notably, commodity players are expected to benefit as the already elevated commodity prices could inch up even higher should the Russia-Ukraine crisis worsen.

       TA Research has maintained its view that the FBM KLCI appears cheap, trading at a consensus 2023 price earnings ratio (P/E) of 14.3 times versus its peers’ 15 times, on the back of an improving economy and corporate earnings.

       It is also optimistic that the normalisation process in economic and business activities post-Covid-19 vaccination may potentially lower the P/E multiple further and attract more investors, especially foreign investors with a current low shareholding of just 20.2% in Malaysian equities.

       “Thus, we anticipate continued improvement in net foreign inflows but the benchmark index’s upside could be capped by domestic politics until we have a strong government post-15th general election,” it said in a report.

       It has kept its end-2022 FBM KLCI target at 1,700 points based on the 2023 P/E of 15.3 times.

       It is noteworthy that the FBM KLCI made a recovery after hitting a low of 1,475.37 points on Dec 15 last year, triggered by fears that the rapid spread of the Omicron virus strain may threaten fresh economic lockdowns globally.

       However, the benchmark index rallied to a near ten-month high of 1,614.82 in mid-February, as investors returned from the Chinese New Year festive holidays to bargain hunt. This optimism was also fuelled by sustained foreign fund buying interest on economic recovery and value plays.

       TA Research also pointed out that geopolitical tensions may influence global central bank movements, especially the United States Federal Reserve, to take a step back from aggressive monetary tightening which helped trigger a strong rebound of the index to a high of 1,620.44 on March 1.

       “The benchmark index may give back some of its recent gains, pending the outcome of ongoing talks between Russia and Ukraine.

       “Anticipate 1,500 to be a strong psychological support for the FBM KLCI.

       “Nevertheless, we believe any weakness will be short term in nature based on historical counts and is a buying opportunity,” it said.

       RHB Research, meanwhile, noted that current volatility in the market and fiscal risks call for a trading strategy around defensive counters.

       “Fiscal and regulatory risks remain as higher oil prices continue to add to a rising fuel subsidy bill that already exceeds incremental fiscal revenues.

       “The heightened market volatility supports a trading strategy centred around core defensive exposure,” it said in a note to clients.

       The research house added that the recent outperformance of large caps had already lifted the FBM KLCI’s P/E to 16.5 times of the financial year 2022 forecast on the back of a nominal earnings per share contraction of 2.2%.

       “This suggests profit taking on the large caps and investor patience to accumulate at lower levels,” it said.