PETALING JAYA: Buying opportunities still abound in the FBM KLCI following a sharp global sell-off on Monday.
Rakuten Trade head of equity sales Vincent Lau believes that things have stabilised following the bloodbath across the local bourse earlier this week.
With that said, Lau opines that investors can continue to take advantage of the situation by buying on dips, as the recent sell-off has created attractive opportunities for accumulation. “I think the current pullback presents a good opportunity for investors to buy. For Malaysia, the approach is to buy-the-dip or buy on weakness.
“Our fundamentals remain strong. Data in the US shows that institutional investors are buying in large volumes while retail investors are the ones selling and not the other way round,” he told StarBiz.
Lau said the recent event is also a good correction for tech stocks to return to more attractive prices. “I am still looking at the tech sector, particularly with developments in artificial intelligence and data centres.
“Additionally, construction stocks are also expected to continue to perform. Big-cap stocks like Tenaga Nasional Bhd
and banks are also solid counters,” he said.
Monday’s global trillion-dollar sell-off was mainly due to Japan’s interest rate hikes, which led to the unwinding of yen carry trades, as well as the intensification of US recessionary fears fuelled by rising unemployment rates in the US and delays in rate cuts by the US Federal Reserve (Fed).
The FBM KLCI plunged by more than 70 points on Monday to 1,536.48, before recovering by 55.39 points to 1,591.87 yesterday.
Wall Street’s “fear gauge” – the Cboe Volatility Index or VIX – has eased off to 23.09 from a high of 65 on Monday.
The VIX is calculated based on market pricing for options in the S&P 500.
It is designed to be a measure of expected volatility over the next 30 days.
Generally speaking, if the VIX index is at 12 or lower, the market is considered to be in a period of low volatility.
On the other hand, abnormally high volatility is often seen as anything that is above 20. When the VIX is above 30, that is sometimes viewed as an indication that markets are very unsettled.
“I think things have stabilised now. While fears of a US recession have been widespread, I think they are overdone. Indicators suggest a slowdown, but not necessarily a recession.
“The VIX had spiked up but it has also calmed down now,” Lau noted.
Offering a differing viewpoint, Tradeview Capital Sdn Bhd portfolio manager Ng Tzyy Loon said the strategy of buying-the-dip was on Monday.
While markets have recovered some lost ground, Ng said he “would not call it a dip” at this point.
Looking ahead, Ng said the upcoming corporate earnings results are crucial.
“Earnings growth will continue to support share prices and also the market performance. However, the sentiment has now changed a little bit following Monday’s events.
“Market players may be more stringent when they look at corporates’ earnings results this month.
“For instance, if a company delivers results that are below expectations – especially if this has been the trend for the past one or two quarters – investors may react harshly. They might choose to cut losses, take profits, and rotate their portfolios accordingly,” he said.
For now, Ng said Tradeview still maintains its house view for the FBM KLCI to end at 1,650 this year.
“We believe that earnings support will primarily come from the banking sector and potentially some construction names as well.
“The banking sector, with its 40% weight in the FBM KLCI, will play a significant role. In fact we see that from Monday until today, the financial sector is the sector with a lot of buying volume, the total traded value is actually the highest, so it is the anchor for KLCI to be at 1,650.
“We think our target can be achieved due to a more stable interest rate environment this year and an improved investment performance. Banks are expected to report better non-interest income and possibly higher fair value gains from their bond holdings,” he said.
To be sure, a recession in the US is not likely at this juncture, as pointed out by Bank Islam chief economist Imran Nurginias.
Imran said the financial markets continued to see extreme volatility, but that the global rout seems to have paused for now.
He noted that the violent market reactions to last week’s US labour report continued to backtrack, suggesting that the initial knee-jerk response was overdone.
“The risk of a US recession in the next 12 months is high, but there is not enough evidence right now that a recession is a certainty or that it would be a ‘bad’ recession (ie, deep and prolonged rather than short and sharp like some major economics have experienced in recent years).
“The Fed is almost certainly going to cut interest rates at its September meeting, potentially even by 50 basis points, depending on how financial market conditions and economic data track over coming weeks,” he said.
Nevertheless, Imran said the bank remains confident in the underlying health of the US economy and believes the Federal Open Market Committee will as well, resulting in a more muted easing cycle than the market currently expects.
“In gauging the underlying health of the US economy, firstly it is important to recognise that US employment estimates are, at worst, pointing to a stalling out of job growth, not an outright contraction.
“Current momentum in US economic activity is also healthy, with domestic final demand growth around average in the first half of 2024, circa 2.5% annualised. Households’ decision to lock in historically low rates before and during the pandemic continues to provide benefit, while consumer wealth and debt levels remain constructive for spending and confidence,” he noted.
Meanwhile, Fortress Capital Asset Management Sdn Bhd chief executive officer Thomas Yong said going forward, investors will pay particular attention to the US economic data and any Fed policy guidance.
“Ideally, investors would like to see a soft landing in the US economy, with the Fed cutting interest rates gradually. From this perspective, we prefer Asian markets as a weakening US dollar would favour investments in the emerging markets,” he said.
Yong added that in a volatile market, some corrections are frequently overdone in the short term. However, certain developed markets have had elevated valuations for some time and some investors may reconsider their positions in those markets.
“Investors are likely to be cautious on stocks with richer valuation and reassess the growth potential given slower expected economic growth,” he said.
