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M'sian market resilient despite uncertain outlook
Publication Date : 25-06-2012
Speculation over when Malaysia's 13th general election will be held, the impending listing of politically connected stocks together with a volatile external front continue to influence stock market performance.
However, despite the volatility, the benchmark FTSE Bursa Malaysia KL Composite Index (FBM KLCI), which did not perform well in the first quarter, has proven to be resilient since mid-May, sustained mostly by local funds.
Singapore-based Templeton Asset Management Ltd co-chief executive officer Dennis Lim told StarBiz that foreign investors were more worried over the slowdown in the major economies than the political climate of the country.
"I don't think the political climate will be a big factor. Investors are looking to South-East Asia as a safe haven because of the region's sizable population and healthy domestic demand," he said.
Lim said foremost on investors' minds were more clarity on the eurozone debt crisis, China's growth prospects and whether the US Federal Reserve would give additional support to the economy.
However, he pointed out that an element of certainty in Malaysia's political climate would give an added boost.
"As far as investors are concerned, they like certainty. So, this business of not knowing when the elections will be held is never a good thing," Lim said.
He said the asset manager took the long-term view where its investments were concerned, as announcements on infrastructure development, liberalisation of investments and transparency were already priced into the stock market.
On a global basis, Franklin Templeton Investments favours commodity and consumer-related stocks while in Malaysia, it has good exposure to plantation stocks.
"We feel that the short-term drop in commodity prices is really an opportunity to build up a portfolio in plantation and other commodity-related stocks," Lim said, adding that the asset manager did not share the generally held view of marked slowdowns in China and India and the potential impact this would have on commodities.
BIMB Securities Sdn Bhd research head Kenny Yee said volatility was quite limited due to the defensive nature of the local stock market while foreign shareholdings remained low.
"I don't expect any sharp selldown unlike last year, as this time around fund managers are smarter and more resilient," he said.
However, Yee said the domestic political climate and external volatility remained the major concerns.
"Investors are tired of the speculation over the election date. The upside now is to continue to bargain hunt while in a broader sense, a lot of funds are still flush with cash, so they'll need to park their money somewhere," he said.
Yee noted that recently, these funds had bought into defensive stocks.
"The way I see it, the market is well-supported with ample liquidity," he added.
Meanwhile, CIMB Investment Bank Bhd head of equity research Terence Wong said in a strategy report dated June 20 that the fundamental picture remained mixed, with the stock market having underperformed for most of the first-half except in the May/June period.
"While we no longer expect interest rates to be cut this year, the European debt crisis continues to be a major concern.
"Although the February and May results seasons were still disappointing, there were nonetheless some green shoots. We believe that we may have come to the end of major earnings cuts, which is positive for the stock market," he said.
Wong said the guessing game for the general election continued as the odds of a June/July date were diminishing.
He added that any month from now till the mid-2013 deadline was now a fair game.
"All predictions made over the past two years have proven to be wrong. This means that election concerns will drag on and could act as an overhang on the market," Wong said, adding that fresh on investors' minds was the 10 per cent drop in the FBM KLCI immediately after the 2008 elections.
He said if not for the upcoming elections, CIMB Investment Bank would be more bullish on the stock market as much progress had been made on the transformation programmes, particularly the Economic Transformation Programme.
Wong said that as such, the research house was maintaining a "neutral" weighting and end-2012 FBM KLCI target of 1,610 based an unchanged price-to-earnings of 13 times.
"Our preferred stocks continue to come from the brewery, gaming, real estate investment trusts and utilities sectors," he said.