Now is the time to buy Malaysia, says Affin Hwang
By Billy Toh / theedgemarkets.com | August 18, 2016 : 5:07 PM MYT
KUALA LUMPUR (Aug 18): Affin Hwang Asset Management Bhd believes now is the right time to buy into the equity market in Malaysia, which has been lagging in terms of equities recovery in comparison to its peers in the region, and recommends specific themes like construction and infrastructure, besides high-yielding stocks.
"If you look at foreign position in Malaysia's stock market, foreigners have not been investing in Malaysia. On a rolling 12-month basis, foreigners have been net sellers of Malaysia. Technically, it's a good thing.
"If we can demonstrate some growth as we move into the second half of next year, foreigners will come back. The other ASEAN markets have done well. From a valuation standpoint, Thailand, Indonesia, (and) Philippines have done well and [been] rerated," Affin Hwang chief investment officer David Ng told the media after the firm's briefing on navigating the undercurrents of Asian markets.
When asked if one should buy Malaysia now, Ng said: "We are [buying]. We think there are also specific themes [at play] in Malaysia." Ng added Affin Hwang is taking a barbell approach to investing in Malaysia.
"Construction is one of those we like. At the same time, we think we are still in that low-inflation environment so dividend income features prominently in our strategy. So, it's a combination of dividend income and some growth ideas such as construction and infrastructure beneficiaries," Ng added.
During the briefing earlier, Ng said the country's infrastructure spending is one of the positive themes that could be beneficial to construction companies, besides steel and cement makers. He pointed out Ann Joo Resources Bhd, one of those that have been showing strong earnings, as among those benefitting under the theme.
Ann Joo announced a second consecutive profitable quarter with earnings of RM92.4 million in the second quarter ended June 30, 2016 (2QFY16), compared to a net loss of RM10.85 million in 2QFY15. The group returned to the black in 1QFY16, after posting a net profit of RM5.52 million.
Meanwhile, amid slower global growth, low inflation and interest rate, yield stocks in Malaysia, such as real estate investment trusts (REITs), have done very well, said Ng.
Among the REITs that have performed is IGB REIT, said Ng. As for stocks that give good yields, Fraser & Neave Holdings Bhd (F&N) and Classic Scenic Bhd were cited as examples.
"Investors are also looking at reforms and restructuring that are taking place in [certain] companies, like the appointment of former cabinet minister Tan Sri Abdul Wahid Omar as the new chairman of Permodalan Nasional Bhd (PNB), which could be potentially value-unlocking," he added.
In terms of the rise in activities seen in the market in the last two weeks, which saw counters like Felda Global Ventures Holdings Bhd (FGV) and SapuraKencana Petroleum Bhd climbing, Ng said there is some return of appetite for risks.
"That means investors are prepared to take on more risk. For SapuraKencana, it is suitable if you are looking for exposure to oil. I think Malaysia is one of the largest and closest proxy to oil trade. As for FGV, the new leadership that has come on board have said the right things, such as no more acquisitions," he said.
Among Ng's top picks are Tenaga Nasional Bhd (TNB) and CIMB Group Holdings Bhd.
"In terms of large caps, one stock that we like is TNB. I think TNB gives you that combination of earnings certainty and some earnings growth, as well as potential for higher dividend," he said.
"Another stock in the large caps that we think has come down to levels that make it look attractive is CIMB. I think a lot of banks still need to run through issues that all banks are facing, which is rising non-performing loans (NPL), slowing credit or loan growth. But we think these are already priced in for CIMB. It's trading at 0.8 times its book. Its subsidiary in Indonesia is also recovering very well," Ng added.
To Ng, CIMB's Indonesian subsidiary, PT Bank CIMB Niaga Tbk (CIMB Niaga), was the weak link of the group previously, but Ng said issues surrounding CIMB Niaga have passed.