‘Fed rate cuts to boost interest in O&G, bank and REIT stocks’
Oil and gas (O&G), banking and real estate investment trust (REIT) counters are expected to see interest from investors when the United States Federal Reserve (Fed) begins its rate cut campaign.
Kenanga Investment Bank Bhd (Kenanga Research) said sentiment on broader equities would hinge not only on the extent of the cut but also on the “the Fed’s outlook”.
“Most of the time, US rate cuts have been positive on the FBM KLCI. Even so, we highlight opportunities in sectors that may enjoy knock-on benefit from US rate cuts, post recent sell-downs.”
Yesterday, it said a rate cut could translate to improved interest in the capital expenditure-heavy O&G sector as operating conditions could ease.
Kenanga Research recommends players servicing the upstream space, such as Dayang Enterprise Holdings Bhd and Wasco Bhd, which is more leveraged to the global exposure for its pipe coating business.
On REITs, it said with Malaysian Government Securities (MGS) yields expected to end lower around 3.6 per cent by year end due to probable US rate cuts and a steady supply of MGS, the spreads between the returns for investing in REITs versus MGS yields at 2.75 per cent will be at level.
It recommends exposure to Sunway REIT and Pavillion REIT.
Kenanga Research said the steady rate environment would raise investor interest in banks, with large capitalised banks expected to draw the most interest.
This is especially true for CIMB Group Holdings Bhd and Public Bank Bhd, which are likely to attract larger interest amid fund inflows.