PETALING JAYA: BlackRock Inc, the world’s largest asset manager based in New York, is reducing shares in Malaysian companies because it is betting that stocks in other regional markets will rise at a faster pace this year.
The FTSE Bursa Malaysia KL Composite Index (FBM KLCI) climbed 10% last year to outperform many of its regional peers, prompting foreign analysts, including those at Standard Chartered bank, to cut their rating on Malaysian equities to “neutral” from “overweight”.
The bank raised earnings growth for top Malaysian companies from 8% to 10% for 2014, but noted that the expansion still trailed the likes of China and South Korea, where earnings per share (EPS) growth has been projected at between 14% and 20%, respectively.
“There’s a lot of very cheap markets in the region where I’ve increased the fund allocation, and some of this money would also be allocated to other markets in North Asia,” BlackRock’s director and portfolio manager of Asian equities Joshua Crabb said.
“The better the market has done, the higher the possibility of me trimming that position,” he told reporters at the Asian equities market outlook briefing yesterday.
Crabb said at current levels, the FBM KLCI is valued at 17 times earnings, which is a huge premium compared to the MSCI AC Asia-Pacific ex-Japan Index, which is trading at about 12 times multiple.
BlackRock manages over US$4.1 trillion in assets globally, and on the local front, the independent fund manager holds stakes in companies like Tenaga Nasional Bhd
, MMC Corp Bhd and Hartalega Holdings Bhd.
“Equities in North Asia are still at a very cheap valuation, and when the economy in the United States and Europe improves, consumer demand would improve, and consumer products like cars and electronics are exported from markets like Korea, China and Taiwan,” he said.
Despite the FBM KLCI’s outperformance, foreign fund managers were huge sellers of Malaysian equities, especially during the second half of 2013, according to data compiled by MIDF Research.
The Malaysian equity market is seen as a more “defensive market” and could be under pressure as investors switch to cyclical markets.
Standard Chartered bank head of emerging market equity strategy Clive McDonnell believes investors are looking for more excitement and will prefer markets such as South Korea and Taiwan that have more cyclical sectors such as technology and shipbuilding.
“In 2013, Malaysia was the best-performing market in Asia, as it has nice and stable companies that generate good dividends, of which during challenging times investors want that stable nice growth,” he told reporters after his presentation at the Standard Chartered Global Research Briefing 2014 entitled “Rising East, Emerging West”.
“A 10% EPS growth is certainly credible and reflects our ‘neutral’ recommendation,” he said.
McDonnell believes there will be a reversal of investment funds back into Malaysia, and the selldown by foreign fund managers appears to have slowed in recent months.
The ringgit had weakened 2.3% in the past three months to 3.276 against the US dollar yesterday, partly due to the outflow of portfolio funds.
Standard Chartered head of FX Research Callum Henderson said the ringgit was forecast to trade to a low of 3.35 against the greenback by the second quarter of 2014, as the US dollar continued to strengthen.
However, he predicted that the ringgit would strengthen to around 3.25 by year-end.
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