PETALING JAYA: Dividend stocks may be on investors’ radar again as rock-bottom interest rates and talks of an imminent global stock market correction seem likely to steer them away from speculative play in equities.
Ahead of the end of the six-month loan moratorium, touted as a major factor for the retail investor-driven liquidity since April, experts believe investors will begin focusing on stable fundamental plays, particularly stocks with good dividend yield, to stay safe from market volatility.
Expectations are that interest in speculative penny stocks will ease as loan repayment commitment resumes.
Meanwhile, with Bank Negara’s Monetary Policy Committee set to meet on Thursday for a fifth time this year to decide on the overnight policy rate (OPR), experts said a potential rate cut could drag down fixed deposit (FD) rates offered by local banks.
The OPR is already at a record-low of 1.75%, following four rounds of cuts this year with a cumulative cut of 125 basis points.
As a result, FD rates have also fallen.
Speaking to StarBiz, fund manager Thomas Yong said with the indication by the US Federal Reserve that interest rates are likely to stay low for a long period, this would likely allow room for Asian central banks to stay in loose monetary policy during the period of economic recovery.
“Under a prolonged low interest rates environment, investors are likely to switch focus to defensive dividend-yield stocks, especially for those that have been investing in fixed deposits.
“We think stocks with certainty of distributing dividends should perform well.
“The real estate investment trusts (REITs) sector, which usually has a high dividend payout ratio on quarterly or semi-annually basis, fits the requirement of this group of investors, ” stated Yong, who is the CEO of Fortress Capital Asset Management.
He pointed out that the Securities Commission recently allowed the gearing limit of the REITs to be raised to 60% temporarily.
“This would allow greater cash flow flexibility for the REITs, ” he said.
Yong, however, urged investors to be cautious on investing in speculative penny stocks especially for counters that have gained interest largely based on news flow. The rise in share prices is usually unsustainable if earnings do not materialise.
“Investors should focus on the stocks that will continue to have earning recovery, ” he said.
Imran Yassin Md Yusof, head of MIDF Research, said chances are high for investors to shift focus towards dividend stocks.
“Since March, MIDF Research has always advocated investors to hold stocks with good dividend yield and those that are defensive in terms of earnings, ” he told StarBiz.Among the stocks that investors could consider are Tenaga Nasional Bhd and UEM Edgenta Bhd, Imran pointed out. Within the oil and gas universe, Dialog Group Bhd is also a good choice for its dividend payout and defensive earnings.
While the economy has begun to recover, Imran said there remains a lot of downside risks to growth until a Covid-19 vaccine is found.
Asked if banking stocks should be on investors’ list, he said “not at the moment”.
“Banking stocks are still faced with uncertainties, especially over what will happen after the loan moratorium expires in September.
“The sector’s second quarter earnings were a disappointment, with no dividend payouts for almost all the banks, ” he said.
Imran said investors could start looking at banking stocks after October as there would be a clearer view of the post-moratorium impact.
However, he said banking stocks would usually perform better as the economy improves.
Out of the equities universe, Imran said investors could also consider diversifying investments into physical gold.
“Gold has always been seen as a safe haven during times of uncertainties. It is a good store of value and can be considered an option for investment currently.”
CGS-CIMB Research said in a note that investors on Bursa Malaysia are likely to rotate in the later part of the year to cyclical sectors, which will benefit from a recovering economy.
Hence, for its top three picks, the research house has recently replaced Top Glove Corp Bhd with Public Bank and Yinson Holdings Bhd with Malaysian Pacific Industries Bhd, while retaining Tenaga Nasional Bhd.
CGS-CIMB Research pointed out that September was typically a negative month for FBM KLCI’s performance, with an average month-on-month (m-o-m) negative return of 0.6% over the past 10 years and 0.8% over the past 40 years.
“This, coupled with concerns about the end of the loan moratorium, could lead to weakness in the FBM KLCI, ” it said.
It also pointed out that for August, FBM KLCI was the worst performer among the MIST (Malaysia, Indonesia, Singapore and Thailand) markets. The index fell by 4.9% m-o-m, in comparison to the best performer, Jakarta Composite Index, which rose 1.7% m-o-m.
“Stronger participation from retailers was insufficient to offset the selling pressure from foreign and institutional investors in August, ” said CGS-CIMB Research.
Meanwhile, in the first week of September that ended on Sept 4, MIDF Research said foreign investors on Bursa Malaysia were net sellers every day of the week.
“Cumulatively, for the first week of September, foreign investors were net sellers to the tune of RM589.38mil. This was bigger than (the net selling for the) last week of August at RM485.00mil.
“Meanwhile, retailers are net buyers of RM660.08mil worth of equities last week, with local institutions at -RM71.52mil net during the same period, ” it said in its weekly fund flow report.
So far in 2020, net outflow of foreign investors from the equities have amounted to RM20.94bil.
Local institutions and retail investors are net buyers at RM10.21bil and RM9.77bil respectively.
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