The FBM KLCI wobbled into the negative territory as lack of fresh catalyst coupled with the persisted fears over global recession prompted the cautious trading environment. We believe the subdued trading tone could be temporary as the local bourse should poised for recovery on bargain hunting activities as Malaysia government re iterated that it will only tighten the Covid-19 SOP without discriminating against any nation; this should provide a boost towards our economic activities.

The long-awaited recovery is likely to emerge with the reopening of China’s travel borders. We believe this will be able to offset the recession risk under the (i) elevated interest rate environment, (ii) ongoing tension between the Ukraine and Russia and (iii) overheated inflationary pressure at least for 1H2023. We are feeling cautiously optimistic on the local front after (i) a solid GDP growth in 2022, (ii) stable political environment and (iii) the reopening of China’s borders. Hence, we have a few themes under our 1Q23 outlook and strategy, namely the (i) Recovery, (ii) Renewables, (iii) Commodities and (iv) Resilient.

The FBM KLCI kicked off the first trading day in 2023 in the negative territory as market digested recent gains buoyed by year-end window dressing activities. We believe the pullback could be deemed as a healthy pullback and bargain hunting activities should pick up in undervalued stocks despite worries over the Covid-19 sub-variants may continue to weigh on investors’ sentiment. Still, we believe the reopening of China’s travel borders may provide decent growth for most of the global economies with another round of pent-up demand.

Established in 2006, Hektar has now expanded its property portfolio to 6 shopping centres spanned across Subang Jaya, Melaka, Muar, Sungai Petani, Kulim, and Segamat worth a total of RM1.20 bn. We project core earnings to be driven by improving occupancy rate amid economic recovery in FY24f, as well as the REIT’s initiatives to improve energy efficiency. Hektar is valued by pegging its FY23f core EPS of 7.7 sen to P/E of 11.0x, leading to a FV of RM0.84. Projected dividend yield is attractive at 9.9% for FY23f based on current share price.

The FBM KLCI ended higher on the final trading day as window dressing activities in utilities, banking and telecommunications heavyweights lifted the key index, albeit foreign funds showed an outflow of RM304.1m. After the window dressing activities, we expect local bourse to pullback in the near term, digesting the Covid-19 situation in China. Nevertheless, we believe the reopening of business activities and travel borders in China should be able to avoid the recession risk going forward.

The FBM KLCI continues to trade positively, driven by the ongoing year-end window dressing activities in the banking and telco heavyweights. Also, with the positive rebound on Wall Street, it may spillover to the local front and trading activities to stay on an upbeat manner; the FBM KLCI should revisit the 1,500 level. Traders will be focusing on the China’s borders reopening catalyst and position themselves for the recovery theme trades.

Going forward, we expect CPO prices to trade at an average RM3,500/MT for 2023. The rising inventory level that climbed to 2.3m tonnes in November 2022 highlights that demand remains relatively soft despite total CPO production was flat at 16.8m tonnes in 11M22. We expect challenges to persist from the rising labour, fertiliser and transportation costs that will keep margins in check.

The FBM KLCI outperformed the regional peers, driven by year-end window dressing activities and persisting buying from foreign funds (5-day cumulative stood at RM222.3m). Global sentiment might remain tilted to the downside in view of the overnight slump on Wall Street. Nevertheless, the local bourse should continue to be supported by year-end window dressing as well as elevated firmer commodities price.