FUND managers are adopting a cautious approach in their investments in the sluggish equity market although several strongly believe the market will improve towards the end of the year.
Hwang-DBS Investment Management Bhd executive director Teng Chee Wai said the company would, at this juncture, still adopt a cautious attitude in its investment in the equity market in view of the uncertainties in the global economic environment.
“We shall retain a defensive tilt to our portfolios, and look out for some signals before deciding whether to deploy more money aggressively into the equity market. A major catalyst could be if the US Federal Reserve decides to pause its interest-rate hikes in view of the slowing global growth environment.
“Other catalysts will include lower oil prices, acceleration in money growth, as well as a bottoming of negative earnings revisions. The next quarter would be crucial in determining our stance. Until then, companies with strong cash flows remain our preference. Some of the smaller companies also present interesting values,” Teng told StarBiz.
Pacific Mutual Fund Bhd chief investment officer Geoffrey Ng said that so long as oil prices remained high, margins and hence corporate earnings growth rates would continue to be under pressure.
He said while the company expected year-on-year earnings to improve in the second half of the year, concerns on external uncertainties would cause the market to remain volatile and highly dependent on news flow and sentiment.
Taking a slightly different stand, TA Unit Trust Management Bhd CEO Mohd Hasnul Ismar Mohd Ismail said that based on existing domestic economic indicators and the global economic outlook, the potential for the stock market to perform positively until year-end was still intact.
“Relatively speaking, from this level, the equity market should be able to provide better return compared to other asset classes, such as fixed income securities. Bond yields have fallen to such a low level and thus, not much room on the upside anymore.
“We are still looking at the KLCI reaching above 900 points before year-end and the equity market should trade more actively towards the end of the third quarter this year, Hasnul noted.
Avenue Unit Trust Management Bhd CEO Danny Wong said the company was of the view that most of the bad news had been factored in and, therefore, the market had bottomed out.
Wong said: “In the near term, the market will remain choppy but with a slight upward bias as the majority of bears have been flushed out and marginal investors start to bargain hunt.
“Having lagged behind most of the region this year, we should see some foreign funds nibbling in again in the coming months.”
Comments from various sectors
Chief investment officer
CIMB-Principal Asset Management Bhd
WE anticipate the market will trend sideways, pending confirmation on whether third quarter gross domestic product figures will be better and whether the global environment will be more stable.
This will be a challenging year because we are looking at interest rates moving up for the first time in eight years. However, this does not mean we are bearish, as markets are not fully efficient most of the time. When opportunities occur due to mis-pricing, we will exploit them.
Avenue Unit Trust Management Bhd
ON the recent limit-down trades, we would like to ask how some stocks with minimal fundamentals managed to reach their lofty levels in the first place. Such a severe and sudden sell-down damages overall sentiment and confidence in the near term.
On the bright side, it provides a good opportunity to separate the good from the bad. Some fundamentally sound small-cap stocks have been indiscriminately sold down along with their weaker counterparts. As such, it is a good opportunity to accumulate some decent stocks at bargain prices.
MOHD HASNUL ISMAR MOHD ISMAIL
TA Unit Trust Management Bhd
IN the near term, our strategy is still cautious when it comes to stock picking. We are still very much in favour of those high dividend yield and defensive stocks. However, there is a lot of value being created in cyclical stocks especially those small-cap companies. As such, we would not hesitate to search for values when the time is right and change our strategy to be more aggressive.
We advise investors to look at their own risk profile before investing. For those strong-hearted, aggressive and have long-term investment objectives, we recommend they take advantage by buying into those cyclical and aggressive funds or stocks which have fallen tremendously but still offer solid fundamental. For the weak-hearted, stay cautious by buying into funds or stocks with defensive quality and offer steady stream of income.
TENG CHEE WAI
Hwang-DBS Investment Management Bhd
With oil prices recovering to US$54 per barrel currently, the market is likely to be dictated by external factors and remain in a tight trading range in the short-term.
Technically, the KLCI is strongly supported at the 850 to 860-point level. If this support is breached, it would likely find the next support at 835. Strong resistance is seen at 890-level.
Chief investment officer
Pacific Mutual Fund Bhd
There is deep value in selected companies that may now invite bargain hunting, or better yet, further merger and acquisition activity through equity vehicles. The market is recovering from a bout of severe risk aversion arising from the recent spate of limit-downs resulting from bank and stockbroker margin calls.
The gains registered since Friday has been the result of investors looking for value amongst beaten down stocks, post the joint-announcement by leading domestic financial institutions that they remain supportive of margin financing.
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