THERE is a cautious mood among fund managers over how well the stock market would perform in the second half of the year.
Fund managers contacted by StarBiz were generally of the view that the market outlook would largely depend on how external concerns - such as interest rate movements, terrorism threats and oil prices - would pan out.
On the local front, all eyes would be on the upcoming quarterly reporting season that is due next month.
SBB Mutual Bhd chief executive officer Paul Low expected the stock market to be more active after the release of the second quarter corporate results and the Umno election.
“Our house view is that the KLCI will hit 900 by year-end, which is better than 2003's closing of 793.94,'' he said.
HLG Asset Management Sdn Bhd executive director/chief executive officer Richard Lin said equity markets in the region could see greater volatility in the latter part of the year owing to uncertainties in the US stock market.
Lin reasoned that the US stock market could turn more volatile with rising inflation, as this would signal a more aggressive interest rate hike policy by the US Federal Reserve.
As for the region, Lin said continuing high oil prices could potentially hurt North Asian economies such as China, South Korea, Japan and Taiwan, although fears of a hard landing in China's economy was subsiding as policies imposed by the Chinese government seemed to be working.
Despite the gloom and doom, Lin said, Malaysia could potentially benefit, as it is a net oil exporter nation, has low export dependency on China, and has a strong domestic economy.
In addition, the country is also viewed as a defensive country due to its pegged currency, stable political environment and sound banking system.
“Effectively, Malaysia could benefit from inflow of foreign funds if regional macro environment turns cautious,'' Lin said.
Prudential Unit Trusts Bhd chief executive officer Mark Toh, meanwhile, takes a more neutral view.
“We will first look at how well companies perform in their third quarter earnings, and use that as a yard stick in determining the sustainability of corporate earnings going forward,''
Toh said the good earnings results seen in the first half of the year were largely due to the post SARS (severe acute respiratory syndrome) recovery effect.
“If the companies are still be able to deliver well in their third quarter earnings, we believe focus will begin to shift back to fundamentals rather than the current sentiment-driven market. And this will take the stock market to higher levels,'' Toh said.
Taking a more cautious stand, Hwang-DBS Unit Trust Bhd advisor Teng Chee Wai felt that equity market in the second half of this year was not likely to do better than the second half of last year.
“Last year, we came from a very pessimistic scenario where there were fears about deflation and whether an economic turnaround would hold. Therefore, the incremental good news was significant.
“The equities and bond markets are trying to determine what growth will be like in 2005. The rate of growth is likely to slow down, but we think the markets are trying to figure out if growth will drop markedly,” Teng said.
Pacific Mutual Fund Bhd chief executive officer Michael Auyeung said the fact that most of the foreign hedge funds and some of the longer-term foreign funds had already exited the local stock market in the second quarter had put a floor to the KLCI's decline.
“While local funds have helped the market recover of late, it would require the return of foreign money to spur performance. What would be the sentiment trigger for that to occur is hard to pinpoint, but there are certainly no lack of positive events in the offing, both domestically and internationally.
“However, as we move into 2005, these funds will again need to seek out performance, largely against a backdrop of fair to overvalued US equity markets, US bond markets with limited upside, and underperforming cash returns.
“Moving back to the Asian and emerging equity markets may not be an option,'' Auyeung said.
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