« Buying Malaysia: The Ultimate Contrarian Trade » – Credit Suisse

Source: Pixabay

Credit Suisse’s strategy team lists 10 reasons why investors should turn positive on Malaysia, in a report date March 15, 2017.

We turn constructive on Malaysia for the following ten reasons:

« 1. Consensus GDP growth forecasts are showing early signs of upgrades

2. Earnings revisions have turned positive for the first time in close to five years

3. The ringgit appears attractive at current levels after significant devaluation

4. Equities have undershot their typical association with relative value creation

5. Repair in the macro environment benefits the heavyweight banking sector

6. Consumer sentiment in the doldrums appears set to recover

7. Our macro regression model warrants 8% potential upside for MSCI Malaysia

8. Malaysian equities have so far lagged the recovery in oil prices

9. Malaysia continues to be a consistently attractive yield play in EM

10. Fund positioning and analyst recommendations are extremely bearish »

Most of those points are liste at length in the note. We would just like to focus on the fundamental drivers, with rising commodity prices driving up the GDP estimates going forward, which might propel EPS up 16% during the coming 12 months according to Credit Suisse’s estimates.

Upward earnings revision might be a powerful driver for momentum seeking investors, especially when the country is apparently getting out of negative momentum that it was dragged in in the past. Per CS’s report:

« At a sector level, the recovery in earnings revisions albeit led by, is not restricted to, the energy and mining space. Among the larger sectors, consumer discretionary and staples have recovered sharply well into net positive territory with industrials and financials improving to at least neutral levels. »

Credit Suisse thesis on Malaysia in a nutshell…

Source: Credit Suisse