RHB Research Institutes has reduced its call on the consumer sector to Neutral from Overweight, mainly on stretched valuation grounds.
“Despite trading at lofty valuations, we believe large-cap consumer stocks will continue to get interest/support from investors seeking defensiveness and yield amid market volatility from upcoming general election and global economic uncertainty,” it said on Thursday.
RHB Research recommended investors to buy quality consumer stocks on weakness and to trim tactically when their prices surge ahead. Its top pick in the sector is QL Resources where it has an Outperform and fair value of RM3.60.
To recap, it said large-cap consumer stocks are trading at rich valuations which have already priced in their positives such as defensiveness and resilient earnings outlook. Dividend yield compression associated with substantial share price increase.
“The large-cap consumer stocks under our coverage have outperformed the benchmark FBM KLCI by 13% year-to-date. It will be increasingly difficult for the consumer stocks to continue their sterling run amid rich valuation and yield compression. “On the positive side, we expect resilient domestic consumption in 2013 and positive 2013 Budget measures to sustain top-line growth for consumer stocks,” it said.