KUALA LUMPUR (Nov 2): Persistent geopolitical risks and rising operating costs could take the wind out of Malaysian corporates’ sails in the third quarter, Maybank Investment Bank flagged.

July-September earnings could see quarter-on-quarter moderation among banks from intensifying deposit competition and rising bond yields while the consumer sector is expected to be seasonally subdued amid cautious discretionary spending, the research house said in a note.

“While the macro backdrop remains resilient, the KLCI faces headwinds from uneven earnings momentum,” the house said.

Banking stocks have been under pressure in recent months as global bond yields climbed. Higher yields generally hurt banks as they take larger paper losses from lower prices of the bonds they hold, which eats into capital and forces them to book losses if they sell.

Retailers and manufacturers of consumer goods, meanwhile, are grappling with everything from higher electricity bills to higher costs of imports.

Maybank Investment Bank is cautioning downside risk to its KLCI year-end target of 1,750 points, warning that the possibility of slower overall earnings growth from 5%-6% to 3%-4% could trim its target to 1,670-1,680. The KLCI was last at 1,620.

“We believe elevated energy and operating costs have yet to be fully priced into earnings,” the house said. “We observe that cautiousness on discretionary spending is starting to emerge.”

Still, there are bright spots, with plantation firms benefitting from seasonally higher production and lower unit costs while mechanical and electrical contractors, technology and renewable energy companies are well positioned for stronger sequential earnings, according to Maybank Investment Bank.

“A more resilient sector, healthcare, should see sequential improvements on rising patient volumes and revenue intensity,” the house added.