PETALING JAYA: Looking at how the FBM KLCI has been trending sideways in the past several months without a clear direction, one wonders whether the domestic stock market has enough exciting opportunities to offer to investors.
Without any signs of fresh fiscal stimulus by the government on the horizon, the market lacks catalysts as foreign fund outflow continues and rising Covid-19 infectivity rates raise doubts on the pace of economic recovery.
The FBM KLCI, which is the main gauge of Bursa Malaysia, has been struggling to move north of 1,600 points and break into the 1,700-point territory. Year-to-date, the index is down by 1.2%.
In contrast, blue chip stocks in Europe and the United States have been hitting new record highs. The US’ Dow Jones Industrial Index and Germany’s DAX hit all-time high last Friday, while the United Kingdom’s FTSE 100 index rose to its 52-week high.
Euro Stoxx 50, an index of Eurozone stocks, also touched multi-year high by the end of last week.
Interestingly, small-cap stocks on Bursa Malaysia have outperformed the blue chips, and the FBM Small Cap Index has gained by nearly 10% year-to-date.
Experts say that the local bourse still offers opportunities aplenty for investors, even as worsening Covid-19 fears in the past several weeks have affected market sentiment.
Not only that, with 2021 set to be the year of recovery for the economy, the outlook of the stock market is expected to improve down the road.
The key to discovering potential opportunities in the stock market lies in investors’ ability to identify stocks with improving corporate earnings prospects as well as companies that are well-positioned to rebound from the lows of 2020.In a reply to StarBiz, AIIMAN Asset Management managing director Akmal Hassan said he believes that the year 2021 will be a “growth year” for stocks as the market comes out gradually from the effects of the pandemic.
He also said that there is no perfect timing to accumulate stocks, given that the market will have times of volatility.
“The past year has been a great lesson for investors to understand about their risk profiles and how much volatility they can tolerate in their portfolios. It’s important that they do not stray from their objectives and maintain a long-long term view of their investments.
“As such, we advocate that investors stick to their plan and practice diversification. This can help smoothen returns in one’s portfolio and in turn induce investors to stay invested and ride through market cycles, ” he said.
Akmal, who leads Affin Hwang Asset Management’s Shariah fund management arm, observed that investors have begun to react less negatively to the rising Covid-19 cases as vaccinations pick up pace globally.
“There are setbacks and fears as to what we are experiencing currently, but we think the fears will likely be short-term. We do not believe that the current market weakness will prolong.
“In terms of market weakness among the big caps, we think it all boils down to the different businesses that these big cap companies are operating in. Some will benefit and some might not.
“ Shariah equities have held up well this year due to its exposure in manufacturing, exporters and consumer sectors which has lent support to the index, ” he added.
Wong Wai Ken, (pic below) digital wealth manager StashAway’s country manager for Malaysia, said that the temporary weakness in the market offers investors a good time to build broad index exposure.
“By and large the rebalancing into cyclicals is still underway, even though there are short term impediments to the reopening of the economy.
“For those looking at single stocks, one needs to be more selective around the fundamental strength of the company or time their ins and outs, ” he said.
Wong foresees short-term volatility to remain for the time being, considering that the vaccine rollout has been facing challenges.
Nevertheless, the market’s recovery play especially among laggard stocks is still underway, according to him.
“There are green shoots like foot fall returning to malls and consumer sentiment bottoming out in the last quarter.
“With the second phase of vaccines being rolled out in Malaysia, recovery is still underway.
“Investors should take short term weakness as an opportunity to select quality blue chips that will come out of the crisis stronger, ” Wong told StarBiz.
Echoing a similar stance, Rakuten Trade head of equity sales Vincent Lau recommended investors to “buy the dip” based on their risk appetite.
He said that blue chip stocks in sectors that are recovering such as construction, transportation and property, offer buying opportunities for investors.
However, he cautioned that investors may have to wait before such stocks show upward movements, considering the weakness in market conditions currently.
“Overall, the broader market still offers opportunities, although the FBM KLCI has been trending sideways, ” he added.