KUALA LUMPUR: Permodalan Nasional Bhd (PNB), the largest fund-management company in the country, is cautiously optimistic about its outlook for the stock market next year amid external headwinds.
The firm yesterday declared lower payouts for its flagship funds, as stocks on Bursa Malaysia head into their third consecutive year of losses on weak corporate earnings growth and a heavy sell-off by foreign investors.
Group chairman Tan Sri Abdul Wahid Omar, however, expects a recovery in the price of crude oil and a pick-up in economic growth to lift earnings and boost sentiment in the local stock market next year.
He said the swirling talk about the timing of the next general election could inject some excitement into the stock market in 2017.
“Market speculation is that there is a possibility of 2017 being an election year. As you know, elections tend to spur greater volatility in the stock market. So, this could provide some enhanced trading opportunities,” Wahid told a press briefing here yesterday.
PNB owns controlling stakes in some of the country’s biggest listed companies, including Malayan Banking Bhd , Sime Darby Bhd , UMW Holdings Bhd and SP Setia Bhd .
“Although 2017 will be another uncertain and challenging year, we see sufficient grounds for cautious optimism... we believe corporate earnings will be better, underpinned by higher GDP growth,” Wahid explained.
“This will result in higher dividend-giving capacity and share (price) appreciation,” he added.
According to PNB’s projection, Malaysia’s GDP growth would likely pick up to 4.4% in 2017 from the estimated 4.1% this year, while corporate earnings in 2017 would likely expand 6.5%, compared with a mere growth of an estimated 1.5% this year.
Global crude oil prices are expected to trend higher next year, with the Brent expected to go up to about US$60 per barrel towards the end of 2017, thanks to the recent agreement between the Organisation of the Petroleum Exporting Countries (Opec) and a number of non-Opec members to cut oil production.
“Higher crude oil prices will be good news for Malaysia,” Wahid said.
However, he noted, crude palm oil prices would likely moderate to RM2,650 per tonne by end-2017, as the impact of El Nino on plantations dissipates, resulting in a higher production volume.
With value emerging from the recent market selldown, Wahid said there could potentially be some merger and acquisition (M&A) deals that could spur trading activities.
“We expect some potential M&A plays due to attractive valuations and that could provide some market excitement,” he said.
On the downside risk, Wahid said, “There is no guarantee in the world, but the good thing about Malaysia is that we do have very strong institutional support that could provide some cushion to any potential downside.”
At present, overseas investment accounts for only 2% of PNB’s total portfolio, while the remainder 98% comprises of domestic investment.
Wahid said that while PNB had plans to increase its overseas investment exposure, the fund would do it “at the right time, with the right opportunity”.
“Now is not the right time to invest abroad,” Wahid said, pointing to the weak ringgit as a result of capital outflows.
“As foreign holdings of Malaysian government securities (MGS) are still high at 48% of the total outstanding MGS, we can expect further offloading of the Government bonds by foreign investors. This will put continuous pressure on the ringgit,” he explained.
Notwithstanding the challenges, PNB with the implementation of its six-year strategic plan, will continue to strive to deliver sustainable and competitive returns for its unitholders.
In the briefing conducted in English – which was a break from the norm – PNB announced that its wholly owned subsidiary Amanah Saham Nasional Bhd (ASNB) had declared an income distribution of 6.75 sen per unit and bonus of 0.50 sen per unit for its flagship fund, Amanah Saham Bumiputera (ASB), for the financial year ending Dec 31, 2016 (FY16).
Last year, ASB paid out an income distribution of 7.25 sen per unit and a bonus of 0.50 sen per unit.
Separately, ASNB has also declared an income distribution of five sen per unit for its variable-price fund, Amanah Saham Nasional (ASN), for FY16. Last year, the income distribution of ASN stood at 6.10 sen per unit.
The lower payout is a reflection of the challenging market performance in 2016.
“This year marked the third consecutive stock market decline. The FBM KLCI declined by 73 points from 1,692.5 points on Dec 31, 2015, to 1,619.1 points as of Nov 30, 2016,” Wahid said.
“Overall market performance was affected by various factors including capital outflows into developed economies, low commodity prices, foreign exchange volatility and geopolitical developments,” he added.
Despite the challenging market enviroment, Wahid noted that ASNB still managed to deliver competitive and market-leading returns to its unit holders.
The income distribution rate for ASB, for instance, represented a premium of 3.45 percentage points over the average three-month Kuala Lumpur Interbank Offered Rate of 3.3%, as well as 8.45 percentage points above stock market returns.
As at Nov 30, 2016, ASB recorded a gross income of RM9.59bil, while ASN achieved a total income of RM82.72mil.