Bursa ripe for rebound

Areca Capital Sdn Bhd chief executive officer Danny Wong(pic) is of the opinion that Malaysia’s laggard play is supported by two key factors – a combination of undemanding stock prices and a low ringgit.

PETALING JAYA: A combination of factors such as undemanding stock prices, a weak ringgit, low expectations and a renewed push to boost the economy are some of the reasons why stocks on Bursa Malaysia could finally play catch-up to regional peers in 2020.

The FTSE Bursa Malaysia KL Composite Index (FBM KLCI) has had a dreadful year in 2019, hovering at just 40 points over its four-year low at 1,604 points on Tuesday.

With four trading days to go before the new year, the local benchmark is among the worst performers in Asia-Pacific.

It is also under this scenario that 2020 could be the year the Malaysian bourse rebounds.

Throughout 2019, the FBM KLCI has been lacklustre, with investors adopting a “wait-and-see attitude” following no clear growth catalyst for the country.

Eighteen months after Pakatan Harapan’s surprise election victory in May last year, sentiment on the local bourse remains subdued amid unclear leadership succession plans and flip-flop policies.

It didn’t help that the new administration has been on an austerity drive to rein in its budget deficit.

It is against this backdrop that Areca Capital Sdn Bhd chief executive officer Danny Wong is of the opinion that Malaysia’s laggard play is supported by two key factors – a combination of undemanding stock prices and a low ringgit.

“Foreign selling has been excessive, bringing cumulative net outflows back to the credit crisis era. The political malaise is well priced-in by the market and the powers-that-be are clearly aware of their economic shortcomings, unlike the earlier part of 2019, ” said Gan.

Affin Hwang Asset Management Bhd director of equity strategy and advisory Gan Eng Peng said that 2020 would be a big-cap year if investors took a contrarian view.

“There are low expectations and low positioning from local, foreign and government funds. Domestic investable liquidity remains strong but many of them are sitting on the sidelines, given the lack of market direction.

“Foreign selling has been excessive, bringing cumulative net outflows back to the credit crisis era. The political malaise is well priced-in by the market and the powers-that-be are clearly aware of their economic shortcomings, unlike the earlier part of 2019, ” said Gan.

Despite the global market rally this year, Malaysia has persistently remained at the bottom of the pack throughout 2019. It is down some 5.11% on a year-to-date basis.

Yesterday, the FBM KLCI closed 9.95 points lower to 1,604.23.

On Oct 3, the FBM KLCI fell to one of its lowest levels in four years at 1,564.12. The last time the FBM KLCI hit the 1,500-odd-point level was back in August 2015.

Meanwhile, the ringgit was at RM4.14 per US dollar as at press time. While it has strengthened slightly from the RM4.20 level in the last three months, it is still weaker than the RM3.98 level that it stood at 18 months ago.

For foreign flows in equity, Malaysia recorded its second consecutive year of foreign fund outflows. For 2019, the year-to-date outflow is about RM11bil, while in 2018, it was RM11.69bil.

Barring an inflow of RM10.6bil in 2017, the preceding three years (2014–2016) saw a combined outflow of RM29.7bil.

“Putting ourselves in the shoes of other fund managers, the risk-reward ratio is attractive to invest in Malaysia. Furthermore, gross domestic product (GDP) growth will be supported by mega-projects like Bandar Malaysia, the Pan Borneo Highway, the Central Spine Road, Rapid Transit Johor-Singapore and more, ” said Wong.

Meanwhile, Wong expects Bank Negara to cut at least 25 basis points in 2020 to support growth. Where equity is concerned, his strategy revolves around a mixed exposure to large-cap stocks with a strong and sustainable dividend payout.

Wong also likes mid and small-cap stocks on a future-proof theme (for example, technology, 5G beneficiaries and exporters), the construction sector as well as the defensive consumer sector.

Globally, Wong does not expect a recession, despite more than a decade of market expansion.

While there was an initial scare from the yield curve inversion in August, there have been no strong indicators of a recession.

“Factors that usually precede a recession such as financial market stress and overly-excessive inflated asset prices are not present or blaring red signals yet, ” said Wong.

Having said that, Wong does expect a global slowdown, especially in developed markets. This is evidenced by the continued interest rate-cutting or easing monetary policies to sustain their economies.

He feels that Asia remains the engine of growth.

For Malaysia, the government has projected the GDP growth to remain strong at about 4.8% in 2020. Most economists, however, are less optimistic and are looking at a lower growth averaging 4.5%.