Opportunities in uncertain times


  • Markets
  • Saturday, 11 Apr 2020

CGS-CIMB Securities Bhd chief executive officer Ruzi Ajith: "I would focus on investing in stocks with defensive earnings, high-dividend yield, strong free cash flow and if possible, in net cash positions. Values have started to emerge now."

AMID a backdrop of roiling markets brought about by the Covid-19 pandemic and crude oil crash, CGS-CIMB Securities Sdn Bhd (formerly known as Jupiter Securities Sdn Bhd) launches its retail Islamic Cross Border Trading (ICBT) services through its online platform CGS-CIMB iTrade.

The ICBT provides a complete Islamic Ecosystem with syariah screening provided by Refinitiv Eikon (formerly known as Thomson Reuters Financial & Risk). It offers a broad collection of Islamic equities with over 30,000 company stocks listed in more than 34 countries.

In an Islamic capital market, market transactions are carried out in ways that do not conflict with the conscience of Muslims. Here, there is assertion of religious law so that the market is free from activities prohibited by Islam such as usury (riba), gambling (maisir) and ambiguity (gharar).

According to CGS-CIMB, the equities go through a screening process and more than 11,000 are certified as syariah-compliant.

The companies are screened monthly depending on the financial disclosure updates.

The exchanges available include the New York Stock Exchange, Nasdaq, Hong Kong Stock Exchange, Singapore Stock Exchange and Indonesia Stock Exchange.

“During uncertainties, there are pockets of investment opportunities abroad and on the local front. Therefore, investors can consider diversifying their investments to reduce the impact of market volatility.

“Hence, we are of the opinion that the launch of this product is timely, ” says CGS-CIMB Securities Bhd chief executive officer Ruzi Ajith.

Below are excerpts of an interview with StarBizWeek.

How the market has changed in six weeks. Fear, panic, despondency and hope have intertwined in the market. What are your thoughts on the Islamic capital market?

I believe everyone is affected by the sudden halt in all business activities globally. This is an unprecedented event which hopefully all of us would never have to go through again. The capital markets as a whole is bracing for a challenging period in the next one year at least.

Our economist is looking at a contraction of 2.3% gross domestic product for this year and the overnight policy rate to decline further to 1.75% from 2.5%. So for the capital markets, we are bracing for more headwinds going into next year.

Bull markets are born on pessimism, grown on scepticism, mature on optimism and die on euphoria. Which stage are we in now?

Probably pessimism. The medical evidence is pointing towards potentially the peaking of the Covid-19 pandemic sometime this month. On confirmation of this, the sentiment should turn to optimism.

For the stock market, which is normally a leading indicator, I would say that the FBM KLCI might have reached its bottom at 1,207 about two weeks ago.

From an Islamic market perspective, can advise investors on how to go through this? Everyone is risk-averse at the moment, but once the coast clears, what should they invest in?

Islamic as well as socially responsible investors plan their investment based on certain principles but in general, I believe they all want to invest in good companies with a strong business model, strong balance sheet, pay high dividend yields, offer good growth potential and most importantly, those that follow the syariah principles.

It will depend on whether global efforts in containing the Covid-19 outbreak are successful. If yes and the worst is over, there is certainly value in market. If not, there could be downside risks.

As I mentioned earlier, I think we are still at the pessimism stage.

However, values have started to emerge. I advocate diversification by investing some of your investment allocation in developed markets such as the United States, Japan, Hong Kong or China.

For Islamic investors, we can use the syariah screener or filter to select syariah-compliant stocks.

For example, global names such as Microsoft, Apple, AMD and Geely are syariah-compliant.

Specific to Bursa Malaysia, I would start to accumulate good quality stocks like TNB, YINSON, Pentamaster, MISC, Sime Darby and VS Industry to name a few. You can refer to our latest strategy report for the full list of our ‘buy’ recommendations.

What are some of the other indicators needed to buy more convincingly?

The key indicators would be the medical evidence of a global peaking and the economic numbers coming out of China as the country has started to emerge from a lockdown.

On a best case scenario, we are hoping that the Covid-19 outbreak to be contained within the next one to two months and most of the impact on corporate earnings confined to the first half of 2020 before recovering and normalising in the second half.

Malaysia has been hit on all fronts. Being an oil producing country and also an exporter. Is there a silver lining?

We are looking at a U-shaped recovery. We are currently undergoing a sharp contraction in the first half of 2020 and hopefully a gradual normalisation in 2H20. This shock is expected to plunge our economy into a recession this year. The silver lining?

Our government has announced cumulative stimulus packages totaling RM260bil and Bank Negara anticipates that the stimulus package to add 2.8% points to headline gross domestic product in 2020.

Do you see this pandemic as a once in a decade or possibly lifetime opportunity to buy Islamic assets at good valuations or yields?

Yes. For investors with long-term investment horizon. The FBM KLCI closing as of end-March is the lowest since 2010 and we are currently in low interest rates environment. So over a medium-term horizon, investing in the stock market could offer higher return/yields against cash holdings.

I would focus on investing in stocks with defensive earnings, high-dividend yield, strong free cash flow and if possible, in net cash positions. Values have started to emerge now.

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