Comments from various analysts and others on the prospects for the ringgit and the stock market.
PETALING JAYA: Prudential Unit Trusts Bhd expects the ringgit to further appreciate to 3.57 to the US dollar by end-2006.
This is partly due to a weaker US dollar and firmer ringgit, according to chief investment officer Lynn Cheah.
“As at end-February, foreign funds were very much underweight on Malaysian equities. Regional funds will undoubtedly rebalance their portfolios by increasing their holdings of Malaysian equities,” she said.
Kenanga Unit Trust Bhd chief executive officer Richard Chua said a number of themes were being played out – the Ninth Malaysia Plan, an under-valued ringgit, a laggard market, the strong performance of the semiconductor sector globally, and a revival in foreign interest.
Chua said the ringgit and foreign interest plays had been particularly strong in the last two days on expectation of the yuan appreciating further ahead of Chinese Premier Hu Jintao's visit to the US on April 20. He expects these factors to help the ringgit to strengthen to 3.60 against the greenback.
On the inflow of foreign funds, Chua said: “It is already evident and more will flow in when the numbers (earnings, economic growth, project implementation) show up. The strong performance of the other regional and developed markets will also spur investors to look at laggard markets like Bursa Malaysia.”
Chua sees strong interest in the banking sector, restructured GLCs, companies in the plantations, semiconductor, construction, export-oriented and consumer-related sectors as well as selected property stocks.
Pacific Mutual Fund Bhd chief executive officer/chief investment officer Michael Auyeung said foreign funds were seemingly already active in the stock market, adding that whether they would increase their weighting on Malaysia would largely depend on what was happening with their investments in other markets.
Domestic catalysts would be earnings upgrades and progress on the execution of policy issues partly related to the government-linked companies (GLCs), he said.
CIMB-Principal Asset Management Bhd chief investment officer Raymond Tang said the company expected the Kuala Lumpur Composite Index (CI) to hover at around 950 points in the second quarter compared with 894 in the same quarter last year.
Tang said despite all the macroeconomic policies announced by the Government in March, including the National Automotive Policy, the disclosure of key performance indicators by the top 15 GLCs, restricted short selling and others, the CI had fallen further.
“Although the country's GDP growth and momentum going forward is still positive, the largest change catalyst would be increasing the pace of GLC reform.
“For now, any upsurge will likely be due to liquidity rather than an upgrade in fundamentals but mergers and acquisitions will spur the market in the short-term, following the BCHB-Southern Bank merger,'' he added.
Phillip Mutual Bhd CEO Fadzli Anas said given the expected strengthening of the ringgit, more foreign funds would flow into the local stock market, as this would make investing in Malaysian assets worthwhile.
Fadzli favoured the banking stocks, selected properties and construction stocks, stable plantation and selected consumer stocks (UMW/Genting) as well as companies with good capital management and dividend payout policies.
Public Mutual Bhd CEO Lam Kam Yin said foreign investors were expected to be selective in their stock picking given that various stocks had already registered strong gains in the recent rally. On the sectors that the company would invest in for the second quarter, Lam named the power, plantations, and selected manufacturing and transportation sectors.
Cheah of Prudential sees electronic contract manufacturer PIE Industrial Bhd, a subsidiary of Taiwan-based Hon Hai Precision Industry Co Ltd, as a good buy.
“It is trading at three times net earnings ex-cash, which translates to a dividend yield of 7%. We also like Kossan Rubber Industries Bhd, one of the world’s leading producers of high-quality surgical gloves.''
Strong yuan will have impact on market
Singular Asset Management founder and chief investment officer Teoh Kok Lin
The second quarter of the year is seasonally a weaker quarter but might turn out differently as we are seeing a lot of momentum in emerging markets.
There are two or three factors that influence the outlook for the equities market in the second quarter, which include the strengthening of the Chinese yuan and other Asian currencies, and rising US interest rates.
The strengthening of the ringgit also increased interest in currency play, which is causing money to spill over to the stock markets.
However, on the domestic side, the situation will be more challenging or generate a mixed response as the earnings of certain corporations might be affected by the new financial reporting standards.
KSC Capital Sdn Bhd
research director Choong Khuat Hock
There is lot of money coming into Malaysia on speculation that the ringgit may strengthen further.
However, a softer patch is expected going forward with a slowdown in domestic economic growth as the impact of the 9MP will only be felt next year. It takes time to mobilise resources and to obtain approvals for projects.
The effects of rising interest rates and fuel prices will also be felt going forward, compared to other countries like Indonesia and Thailand, which experienced such repercussions last year.
A stronger global growth is expected but this could mean that central banks will be raising interest rates to tackle inflation.
UBS Securities Malaysia Sdn Bhd Malaysian Equities Head
Leong Fee Yee
The outlook for the second quarter is generally positive but this will depend partly on whether the government-linked companies can accelerate their restructuring efforts and provide tangible proof by beating consensus earnings on a quarterly basis. The 9MP should also support the market but on the negative side, the first quarter corporate earnings, especially for consumer stocks, might disappoint.
This is due to the 19% to 23% rise in fuel prices in February, which we believe has reduced discretionary spending. The 9MP should have an impact on construction companies and building material producers but these effects would be stretched over five years.
Hwang-DBS Vickers head of research Vincent Khoo
Going forward, the 9MP and ringgit strength provide good catalysts. The 9MP was a needed boost for the economy as the multiplier effect would be positive for the economy.
The direct implication on the stock market is only moderate as the construction and building materials sectors account for less than 5% of the KLCI’s market capitalisation.
Despite the 6% GDP growth projected throughout the 9MP period, the longer term economic outlook remains challenging as the country balances social objectives against regional competitiveness.
There might be some profit taking with some investors “selling on news’ as many stocks have risen ahead of the 9MP announcement and retail speculation can easily be distracted by the World Cup Football season in June and July.
We expect the KLCI to regain firmer footing in the second half of the year as the market looks forward to 2007 earnings and the Umno elections.
SJ Securities head of research Wee Kim Hong
Second quarter earnings will basically be in line with expectations. There are issues like interest rates and oil price hikes but most companies are resilient and have adapted.
We like Public Bank and Maybank for their cost structure efficiency and large loan assets. Public Bank is very efficient in managing its funds and has low NPLs, which will translate into higher (profit) margins.
Malaysian AE Models Holdings Bhd is a good company, having secured a few major contracts in China and Indonesia during the last few quarters.
Bursa will definitely do well due to the high volume transacted in the stock market this year. We expect the company to announce higher dividend payment for shareholders. GHL Systems Bhd is good value for its earnings in China and Indonesia. There is plenty of room for growth in payment systems in China and Indonesia and the company is poised to benefit.
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