OSK pinpoints defensive stocks in wake of global sell-off
OSK pinpoints defensive stocks in wake of global sell-off
By Lee Wei Lian
August 05, 2011
KUALA LUMPUR, Aug 5 — OSK Research has highlighted six defensive stocks that could benefit as the spectre of a global recession emerges from the on-going sell-off in global equities.
The research house said that the mayhem in global markets following Wall Street’s worst stock-market selloff since the middle of the financial crisis in early 2009, has definitely raised the risk of an early recession and a crisis of confidence could easily turn into a self-fulfilling prophecy.
“While it’s still early days yet to say that a bear market is taking hold, we feel that it is prudent to highlight a list of alternative defensive stocks for the longer run that would benefit in the event a recession does set in early,” said OSK in a research note today.
It added that its defensive picks could benefit in the event of a global recession from falling incomes, falling commodity prices as well as a potentially stronger US Dollar due to the flight to safety and are also labelled as “alternative” as they do not come from the traditional sectors of brewery, tobacco and gaming.
The six defensive stocks are:
AirAsia (BUY, FV: RM4.34) — Asia’s largest Low Cost Carrier will benefit from falling jet fuel prices in line with oil prices. Although overall air travel should suffer in a recession, the drop in corporate and personal incomes will likely see more business and leisure travelers downtrade from full service to low cost carriers. We believe AirAsia’s lowest operating cost advantage will see it increasing its market share.
KPJ Healthcare (BUY, FV: RM5.37) — Malaysia’s largest private hospital chain will continue to see good business in the healthcare industry despite a possible global downturn. While some may argue for a downtrade from private to public healthcare, the disparity between the two in Malaysia is quite large and there will more likely be downtrading among patients seeking private healthcare in Singapore to patients seeking healthcare locally.
Media Chinese (BUY, FV: RM1.70) — Malaysia’s largest Chinese newspaper publisher should continue to see sustained demand for its Chinese newspapers, which in any case are cheaper reading materials than magazines. The fall in commodity prices should also bring down the price of newsprint, which is the major cost item.
QL Resources (BUY, FV: RM3.81) — Malaysia’s second largest producer of chicken eggs and South East Asia’s largest producer of fish paste (surimi) would likely see demand for its products rise as consumers downtrade to cheaper food products during an economic downturn. While its expansion plans in Indonesia and Vietnam may slow down, domestic profits would be enough to sustain the company.
SEG International (BUY, FV: RM2.23) — Malaysia’s largest private education provider with 23,000 students will likely benefit from a possible recession and stronger US Dollar as overseas education becomes less affordable, thus making its domestic courses more attractive.
Supermax (BUY, FV: RM5.90) — The world’s second largest rubber glove producer has been suffering from high latex prices, which in turn has been somewhat driven by oil prices. With latex as its biggest cost item, the fall in oil price in the event of a recession will allow margins to rebound as demand for healthcare related rubber gloves remains resilient.
The Dow and the S&P index fell over four per cent yesterday due to recession fears in the United States and that Europe’s sovereign debt crisis could spread to Italy and Spain.
Asian markets meanwhile were dragged down after panic set in due to the sell-off in US.
Kuala Lumpur’s benchmark FBMKLCI index was down about 1.3 per cent as at 11.30am while Hong Kong’s Hang Seng opened down more than 4 per cent, Tokyo’s Nikkei down 3 per cent and Singapore’s Straits Times’s Index also fell nearly 3 per cent.
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