Construction stocks have been on a tear in recent days and elite traders should have been in the thick of action in this sector. Most construction stocks rebounded around 10%-20% over the past few days giving the sector a decent tradeable rally.
How long will the rally last and should you take your profit if you went in based on what the algorithm detected earlier? Sure, most analysts are fundamentally negative on the sector and conservative investors may avoid the sector. However, aggressive elite traders should trade the sector “bear rally” (as of now) as there are good opportunities to play a rebound in these badly beaten-down stocks last year.
According to one research house, weak sentiment among retail investors is likely to persist in 2019 for the construction, property and building materials sector. It said that this is partly due to the US-China trade war, as well as internal obstacles such as the massive national debt of nearly RM1 trillion and softer corporate outlook amid cancellation or postponement of megaprojects.
It also opined that the sharp decline of Brent crude oil prices and weakening ringgit could dampen the growth in the oil and gas, as well as domestic sectors.
However, it said that there are several opportunities within Malaysia to be seen as defensive and investors could monitor on. It added that investors may focus on a few of the strategies in Budget 2019 which are related to the healthcare and insurance for the B40 group in 2019 as well as East Malaysia (Sabah and Sarawak) development expenditure, which is likely to be a more certain theme in 2019.
Another research house which is also negative on the sector said that during the recent Mid-Term Review of the 11th Malaysia Plan, the government has cut the development expenditure allocation for the 5-year plan by RM40bil to RM220bil from RM260bil, as compared with RM268bil spent during the 10th Malaysia Plan.
The research house pointed out on also the emergence of a two-party political system in Malaysia following the recent 14th general election (GE14) enhances the checks and balances within the system of government, particularly the public procurement system.
“With a strict adherence to open bidding in the award of government contracts (under a tight scrutiny by the opposition and the media), we envisage a ‘new normal’ for construction margins which will be, at best, only half of what they used to be,” it said.
It added that the only segment that may see the rollout of larger work packages is the rail sector by virtue of the RM2.46bil allocation under Budget 2019 for the upgrading of rail tracks, including Phase 2 of the Klang Valley Double Track (KVDT) project.
The KVDT project entails the rehabilitation of 42km of tracks between Rawang and Salak Selatan as well as Sentul and Simpang Batu.
Consensus (analysts) outlook for Construction stocks
But with trading hot on the sector, those who get in early as detected by the algorithm would have been the first to benefit. And some unusual price changes and volume are now signaling something bigger could be present in the sector?
Would there be a second or third leg rally? If you are still not in, should you buy and trade at the current levels? The answer is yes and no at the current juncture.