KUALA LUMPUR (Oct 7): Kenanga Research named a few commodity and consumer stocks as potential "outflow hedge" amid capital outflows from regional equity markets, including Malaysia, in response to Chinese stimulus measures.

The research firm noted that since the Chinese stimulus measure was announced, Asean equity markets saw broad-based outflows in early October, especially in Malaysia which was unsurprising on strong performance of 20% year to date gain in the FBM KLCI in dollar terms.

Post the announcement of the China stimulus, the FBM KLCI index has given up gains of 2.5% since the close on Sept 24.

"The jury may still be out there in terms of impact to the Chinese economy, but as we pencilled in our 4QCY24 market outlook report, the first order of impact would be on equity flows due to stimulus effect

"The reason could be somewhat due to these measures partly impacting directly the stock market," said the research firm in a note on Monday.

"We examine some areas where Malaysian stocks could benefit and could function as an outflow hedge on added China stimulus news," it added.

Among counters dealing with commodities and metals, Kenanga has named Press Metal Aluminium Holdings Bhd (KL:PMETAL), OM Holdings Ltd (KL:OMH) and Petronas Chemicals Group Bhd or PetChem (KL:PCHEM) as potential beneficiaries from China's economic stimulus, it said in a note on Monday.

Meanwhile, those that could benefit from stronger consumption on wealth effect are Hong Leong Bank Bhd (KL:HLBANK), Sime Darby Bhd (KL:SIME), IHH Healthcare Bhd (KL:IHH) and PPB Group Bhd (KL:PPB), said Kenanga.

“We watch for potential in Press Metal, highlighting that its aluminium extrusion product is only exported to China with this segment, including China portion, contributing in total 12% to group revenue,” Kenanga said.

The research house noted that China is the world’s largest consumer of aluminium, and thus a China pick-up spells broader demand and is positive for the average selling prices (ASPs).

Moreover, the aluminium three-month futures prices have surged by 4% since China announced its stimulus package on Sept 24, reaching US$2,653 per tonne on the London Metals Exchange.

“We note a third of 2025 volumes has been hedged by the company (Press Metal) at this price levels; an improvement if sustained, but may represent an uplift to Kenanga’s assumption (2025: US$2,500),” it said.

Kenanga also picked PetChem as it stands to benefit from China's position as the leading consumer of petrochemicals. Besides Malaysia, the chemical producer has a global presence across the Netherlands, Sweden, Singapore, Germany, Italy, China, the USA and Canada, according to its annual report.

Nonetheless, PetChem quarterly earnings may be impacted by gestation period losses related to its Pengerang Integrated Complex, Kenanga noted.

Kenanga also mentioned Westports Holdings Bhd (KL:WRPTS) as a stock that could be looked at, following a robust manufacturing sector could also spell positives to the intra-Asian trade.

Industrial pipe and valve supplier Engtex Group Bhd (KL:ENGTEX) and plastic packaging products maker Thong Guan Industries Bhd (KL:TGUAN), meanwhile, were named as the second-order beneficiaries from commodities prices

For Hong Leong Bank, the research firm said that eased lending rules with specific moves for property could benefit the bank due to its 19.8% stake in Bank of Chengdu (BOCD) which contributed 31% of the former’s earnings in FY24.

"Another name that could benefit from a more robust housing and construction sector is OMH, which could ride on the recovery of steel demand. Aside from counting on reduced barriers of entry for mortgages, easing of house buying rules as seen in recent moves in major cities are welcome positives," it said.

Kenaga also picked Sime Darby as the beneficiary for China stimulus as the latter represents about 25% of its revenue from its motor and industrial business, especially with the company’s position as one of the biggest BMW dealerships in China.

Also potentially buoyed by spending willingness would be IHH which operates Shanghai Hospital and Gleneagles Hong Kong which contribute 6% of topline, it said.

On the travel industry, Kenanga noted that Chinese tourists returning to the local shores here would be a shot in the arm for aviation names such as Malaysia Airport Holdings Bhd MAHB (KL:AIRPORT) and Capital A Bhd (KL:CAPITALA). MAHB has also reported a recovery rate of 98% for Chinese tourists compared to pre-Covid-19 levels.

" The airport operator counts 10% of its international business from Chinese passenger movements," it said.

Look out for palm oil stocks

Likewise, crude palm oil (CPO) futures prices have been on the rise, reaching RM4,300 for the December contract.

Thus, Kenanga, which has a "neutral" call on the plantation sector, said that it is monitoring PPB Group Bhd (KL:PPB) and Kuala Lumpur Kepong Bhd (KL:KLK) which cater to China’s demand.

PPB through its 18.8%-owned Wilmar International Ltd has exposure to the Chinese edible oil market, with about 45% market share, while half of its 2023’s revenue was from China, according to Kenanga.

KLK, meanwhile, operates an oleochemical complex in China, and it has recently opened a new high-purity fatty acids and glycerin plant in Suzhou with a capacity of 500,000 tonnes, it added.