KUALA LUMPUR: Oil and gas, banks and REIT counters are expected to see interest from investors with the start of the US Federal Reserve's rate cut campaign.
Kenanga Investment Bank (Kenanga Research ) said sentiment on broader equities will hinge not only on the extent of cut but more so on the "US Fed's outlook. Historically, and 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."
It said fundamental-wise, in addition to restoring sentiment, it sees a demand fillip in oil and gas names.
From market interest standpoint, it sees reason to selectively add big capitalised banks for leverage on foreign interest amid local rates stability.
Kenanga Research said similar interest in the government bonds space may push down bond yields sufficiently for the real estatement investment trust (REIT) sector to begin to re-rate as well from yield spread differentials.
Kenanga Research in its note today said a US Fed rate cut could translate to improved interest in the capital expenditure-heavy oil and gas sector as operating conditions could ease.
"More immediately, we think sentiment on oil price could be further restored, after it had recovered back to more than USD70 per barrel of crude oil (bbl), a level that historically commensurates well with oil and gas spending by oil majors," it said.
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.
Within big caps, it recommends Dialog Group Bhd, as its storage business could act as a hedge, should there be weakness in oil demand. Separately, in the technology sector, it thinks interest will remain in selective thematics with stronger growth prospects, particularly in data Centre/artificial intelligence plays.
On REITs, Kenanga Research said with Malaysian Government Securities (MGS) yields expected to end lower around 3.6 per cent by year-end due to US rate cuts and a steady supply of MGS, the spreads between the returns for investing in REITS vs Malaysian Government Securities (MGS) yields, at 2.75 per cent will be at level.
This it said, historically piques investor interest to drive upside movement of REIT share prices.
It recommends exposure to Sunway REIT and Pavillion REIT.
Finally, Kenanga Research said , the steady rate environment bodes well for interest among banks, with large capitalised banks expected todraw 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.