PETALING JAYA: With all the uncertainties looming over markets globally, fund managers believe there is value emerging in certain sectors locally, such as banking, manufacturing and consumer.
According to Aberdeen Standard Investments Malaysia managing director Gerald Ambrose, the trade war between the two giant economies of the United States and China, whether it blows into a full-blown war or not, would lead to “a lot of” multinational corporations reducing their operations in China and moving to South-East Asia, especially for electronics manufacturing.
“Malaysia is small but a very reliable market and that is revealing at the lower end of the smaller-cap stocks.
“We have a very broad economy from gaming to utilities, banking, consumer, telecommunications, petrochemical and electronics,” he said. Ambrose added that the market is slightly underweight on the banking sector and banking stocks are looking “very cheap” on a price-to-earnings and price-to-book basis.
Market weight is also very small on the electronics manufacturing sector. While it is dependent on external demand, Ambrose feels the sector should be overweight.
As for the property sector, the rest of the market is still suffering from a major overhang, but looking at the discounts to revalued net asset value, Ambrose said values can only go up.
“It is hard to predict what will cause us to catch up. If you look at the small-cap index, it’s up 18% year-to-date (YTD) as to 1.5% drop in the broader index.
“There are a lot of uncertainties and it’s slowly becoming clearer what the government plans to do in taking a step back in the private sector,” he said.
Meanwhile, Inter-Pacific Asset Management chief executive officer Lim Tze Cheng said his firm was now becoming more domestic-centric, looking at more local consumer stocks.
“Our basis is that the goods and services tax (GST) refunds and the resumption of construction projects would boost the local economy, with value having emerged in most consumer stocks over the last three to four years.
“Gross domestic product (GDP) figures have been fantastic over the last few years, but on the ground, businesses are suffering. There’s always this missing link between GDP numbers and the real sentiment on the ground.
“The real reason behind this discrepancy is actually the tax refunds,” Lim said.
He said the RM37bil in GST and income tax arrears that would flow back to the economy and an improvement in consumer spending and consumption can be seen at least in the second half of the year, where it would have a ripple effect on the economy.
The government began the refunding process in January and it is expected to be completed by October.
Lim also said that out of all the uncertainties out there, the only thing certain is that the trade tension between the US and China would not end anytime soon, and it is still too early and too hard to predict what would transpire.
“We’re already moving into quite unknown territory and this would cause some volatility to the market for sure,” he said.
On sectors that investors would likely avoid, Lim said technology was one, but then, there are many categories under technology and one has to look at the companies specifically, as they have different products and customer base.
It is also challenging for the property sector with the overhang. While the main issue is still high bank rejection rates, Lim said loosening the requirements would be pretty tough, as the household debt-to-GDP ratio is still quite high.
Meanwhile, a fund flow report by MIDF Research said an exodus of foreign funds from Bursa Malaysia was observed last week, which extended the foreign net selling streak to the eighth week.
Foreign funds sold RM1.18bil net of local equities last week, a level not seen since October last year.
PUBLIC BANK BHD saw the largest outflow of RM8.04mil, with its share price increasing 0.72% for the week. The research house said this may indicate a sell-on-strength stance.
Axiata Group Bhd came in second with an outflow of RM6.14mil with a 1.14% increase in share price for the week, while MALAYAN BANKING BHD came in third with an outflow of RM5.96mil with a 0.33% increase in share price.
As for top net inflows, Tenaga Nasional Bhd had the highest inflow of RM6.44mil last week, although its share price dropped 1.86%.
“It is notable that net money inflows amidst a retreating share price may indicate a buy-on-weakness stance among some investors,” MIDF Research said.
The FBM KLCI settled at 1,603.74 points on Tuesday, down about 4% YTD.
It remains a laggard in Asean on a YTD basis, alongside Indonesia’s Jakarta Composite Index, which is down 5.9%.