Aside from that, the reopening of international borders and a “return to normalcy” will also boost earnings recovery.
However, the Malaysian stock market is likely to remain volatile amid the challenging external environment and the domestic issues such as the potential general election this year.
With this in mind, here are four trading themes for investors who are interested in buying Malaysia stocks.
1. Beneficiaries from interest rate hikes
The US Federal Reserve (Fed) is likely to raise interest rates aggressively in the coming months as inflationary pressure persists.
Similarly, in Malaysia, I expect to see Bank Negara Malaysia (BNM), the country’s central bank, increase its Overnight Policy Rate (OPR) to curb rising inflation and as economic activity gradually returns to pre-COVID levels.
Among the key beneficiaries from the potential rate hikes are banks. This is as the floating-rate loan is larger than total fixed deposits for banks and would be repriced upward when the OPR increases.
Among some of the banking stocks that investors should watch out for are Public Bank Bhd (KLSE: 1295) and Hong Leong Bank Bhd (KLSE: 5819).
Both Public Bank and Hong Leong Bank offer up resilient defense against credit risks from COVID-19.
Public Bank has consistently managed to maintain the lowest gross impaired loan ratio in the industry.
Aside from that, companies with net cash positions are also less affected as compared to companies with high borrowing levels.
2. Reopening of international borders
The concern over the latest COVID-19 Omicron variant has subsided now as most countries move towards the endemic phase, despite the surge in cases.
This is mainly due to the higher vaccination rates that help to mitigate adverse impacts from COVID-19 and thus protect the healthcare system from being overwhelmed.
While there are macroeconomic concerns, especially with the ongoing Russia-Ukraine war, the reopening of international borders will offer a more concrete economic recovery.
Aviation and the services industries are some of the businesses that will benefit from the reopening of international borders.
I personally think Malaysia Airports Holdings Bhd (MAHB) (KLSE: 5014) will be among the big winners from the eventual return of international travellers to the country.
Another potential beneficiary from this is Capital A Berhad (KLSE: 5099), formerly known as AirAsia Group Berhad.
Aside from the aviation business that will benefit from the reopening, Capital A’s expansion into its digital business with its AirAsia Super App, fintech service through BigPay, and freight chain and home delivery could also gain traction.
3. Growth momentum of semiconductors
While technology and growth stocks have been affected by the impending rate hikes, I expect Malaysian semiconductor services and test equipment providers to benefit from the surge in demand for chips.
The roll out of 5G globally will keep demand for semiconductor strong over the next few years.
In fact, there is a supply shortage in the semiconductor industry at the moment. The strong growth momentum is also reflected by Intel Corporation (NASDAQ: INTC)’s plan to invest US$7 billion in Malaysia.
Among some of my favourites in the Malaysia semiconductor space include Inari Amertron Berhad (KLSE: 0166) and Malaysia Pacific Industries Bhd (KLSE: 3867).
I wrote about five reasons why investors should buy Inari at the beginning of this month while Malaysia Pacific Industries is one of the key beneficiaries of the growing electronics content adoption in electric vehicles (EVs).
Malaysia Pacific Industries is involved in the assembly, packaging and test of silicon carbide (SiC) chips that go into electric motor inverters for leading electric vehicle (EV) manufacturers in North America.
4. Dividend stocks
Dividend plays will become more important amid the uncertainty in the stock market.
This is especially important given the rising geopolitical tensions and the possibility of a General Election in Malaysia being held before the end of this year.
By investing in high dividend stocks, investors can protect themselves from the volatility in the broader stock market.
Historically, the average yield gap between the FBM KLCI’s dividend yield and Bank Negara’s OPR has been 0.6% over the last 11 years.
Among some of the high-dividend yield stocks in the FBM KLCI are RHB Bank Berhad (KLSE: 1066), Tenaga Nasional Bhd (KLSE: 5347) and Genting Malaysia Berhad (KLSE: 4715).
RHB Bank, Tenaga and Genting Malaysia offer dividend yields of 5.8%, 5.1% and 5.0% respectively.
Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.