THE KL stock market will outperform its peers in Asia this year against the backdrop of stable political and favourable economic conditions in the country, said Standard & Poor's (S&P) director and general manager of Asia equity research, Charles Wheeler.
“Asia will outperform the US market. Malaysia will be one of the better performers,'' said Wheeler, who expects Wall Street's S&P 500 Index to gain 10% this year.
He anticipates continuous inflow of foreign funds to Asia, which is seen offering more exciting growth prospects than the US market.
Wheeler said although there was an increasing presence of foreign funds in Malaysia, many foreign money managers were still holding very few Malaysian shares or none at all in their investment portfolios.
But being a “better performer”, Malaysia would benefit proportionately from the flow of foreign funds into the region.
S&P has an overweight rating on Malaysia given the local stock market remains a laggard in terms of valuations relative to other markets in the region and the outcome of the recent general election has removed uncertainties on the political scene.
Wheeler said the anticipated strong domestic demand had set a platform for “domestic demand play” in the KL market.
“Stocks that are related to domestic demand will outperform,'' he said.
He favours consumer counters such as Genting Bhd, Resorts World Bhd and also selected auto industry-related stocks like UMW Holdings Bhd and APM Automotive Holding Bhd despite concerns over a profit margin squeeze as a result of the strengthening Japanese yen.
Wheeler said a downside risk for the local market would be a severe downturn in the US economy. However, Wheeler said he did not foresee that happening, given the American government's efforts to stimulate the economy.
He believes the Malaysian market would offer investors some measure of defence in the event the US economic growth falls short of expectations, noting that a rising number of local companies are paying good dividends.
High crude oil prices could be a wild card for the global economy, Wheeler said.
However, he said that the impact on Malaysia would likely be minimal as the country was an oil producer.
S&P observed that many foreign fund managers tended to focus on China and had overlooked the Malaysian market.
But given its bullish view on the local market, S&P plans to set up a research office in Kuala Lumpur to expand its coverage on Malaysian shares.