US-China trade war: Fund managers pick stocks to boost portfolio

PETALING JAYA: With the US-China trade war heating up with no signs of abatement, fund managers on the home turf, who have been profit-taking, are actively buying into fundamentals locally and regionally to boost their equity portfolios.

Fund managers told StarBiz that they are now in an attractive cash position to invest in quality sectors and stocks that have strong fundamentals.

Fortress Capital Asset Management CEO Thomas Yong (pic) said after a healthy portfolio performance in the first quarter, it has continued to stay invested in Asian equities.

“Having said that, cash levels have risen to almost 25% recently, as some of our portfolios profit-take on earlier positions and realign towards other undervalued opportunities.

“Within this region, our focus is still on China/Hong Kong and South-East Asia, Malaysia included. We believe the US-China trade war and policy stimulus measures would cause volatility in the markets and create opportunities to pick up fundamentally sound stocks,” he said.

Fortress Capital, which has an asset under management and advisory of close to RM1bil, has its eyes set on the oil and gas (O&G) and regional consumer staple sectors.

Yong said he liked the O&G services sector as the prospects of capital expenditure recovery by oil majors improved along with higher crude oil prices.

He also preferred the regional consumer staple sector due to Asia’s resilient domestic consumption pattern and a developing premiumisation trend that would support long-term earnings growth.

This sector, he noted, offered some shelter against fears of any synchronised slowdown in global growth, given its defensive nature.

On the local front, Yong said MALAYSIA AIRPORTS HOLDINGS BHD (MAHB) and GENTING BHD hold strong potential. The former has a sustainable strength in passenger growth, while the latter is viewed as a cheaper proxy to Genting Malaysia and Genting Singapore’s core operations.

“MAHB’s efforts to attract additional airlines, offers for improved connectivity, and visa relaxation for Chinese passengers would offset any negative effect of the introduction of the departure levy later this year,” he noted.

As for Genting, Yong said the price catalysts include the upcoming opening of Resorts World Las Vegas, any positive developments on its bid for a Japanese casino licence, and its rejuvenation plans for Resorts World Sentosa.

On the regional side, Thai Beverage and Chinese insurer New China Life, he said, were attractive buys.

Areca Capital Sdn Bhd CEO Danny Wong said the company has been actively taking profit, as some of its stock holdings have rallied strongly.

“On hindsight, this has proven to be a correct call, as we have built up a decent amount of cash to buy into the current market weakness.

“The return of market volatility stemming from trade tariff fears would present good opportunities for bargain hunters and long-term investors like us. Our flagship equity fund is about 65% invested in equities with the remainder in cash for opportunity, “ he said.

Wong opined that the e-government services and export-oriented sectors such as the electrical and electronics (E&E), rubber glove and furniture exporters would do well in the current market environment.

“ For e-government services, we believe the new government would push for the digitalisation of services to improve efficiency and cost-effectiveness. This sector would also prove relatively resilient in the case of a trade war or recession.

“As for the export-oriented sectors, we believe the trade diversion resulting from the US-China trade war would likely spill over to Malaysia, regardless of whether a trade deal ultimately materialises or not. Without being sector-specific, we also like quality names which have been oversold,” Wong, who currently manages about RM1.4bil worth of funds, said.

Areca’s Wong remains bullish on the local market despite its volatility and it being a laggard among Asia’s key stock markets year-to-date.Even before the recent market turmoil, he said foreign funds had already been bearish on Malaysia and the FBM KLCI had been a major laggard as global and regional indices rallied.

“With the turn of events, these could turn into our favour, as foreign funds take profit off those markets and reallocate investments here instead.

“After all, the Malaysian market is perceived to be a more defensive market. And the bright side is, oil has continued to hold up well,” he said.

Wong is hopeful about the local economy in the long run. For the country’s reforms to show results, he said it has to be a bit more patient. “There would be short-term pain and uncertainty, but we would witness a J-curve effect when things begin to turn better,” he added.

Malaysia’s gross domestic product growth for the first quarter of this year stood at 4.5% compared with 4.7% in the preceding quarter, and 5.3% in the same quarter a year ago. The 4.5% growth was higher than the consensus forecast of 4.3%.

Yong, however, said he was under-weighted on the Malaysian market in view of its valuation and lower corporate earnings growth. “Our view is that the FBM KLCI would remain range-bound around current levels, until external uncertainties become clearer or until any introduction of fiscal stimulus,” he said.

Meanwhile, AmInvestment Bank Research analyst Joshua Ng expects the FBM KLCI to hit 1,820 points by year-end.

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