KUALA LUMPUR, Malaysia (July 6): Against the backdrop of the Covid-19 outbreak, last year’s stock market boom was unexpected. The strong rebound was fueled by abundant money as a result of low interest rates around the world. A loan embargo imposed by Bank Negara Malaysia adds fuel to the fire in Malaysia. What’s more, long-absent retail investors have returned to dominate the local market.
Retail investors will once again be granted a six-month loan moratorium, but research analysts and fund managers doubt that it would aid in staging another rise like last year. The reason for this is that, as a result of the coronavirus, more people are going to confront significantly tighter cash flow than they were a year ago.
Kenny Yee, Rakuten Trade’s head of research, noted that the entire investment scene has altered since a year ago, and that people’s cash buffers are now lower because to the uncertain Covid-19 situation.
“There’s also no reason to invest in the stock market right now because the market isn’t performing well… To kick-start everything, including accelerated immunization roll-out, we need to see positive developments “When reached, Yee told The Edge.
Given the lack of cheap bargains on the local bourse, Yee does not expect retail investors to swarm into the stock market in the same way they did last year, saying that “many of the small cap stock values have gone up higher currently than their lows.”
Nonetheless, low valuations, according to Yee, are the only driver for the KLCI. He hopes that, given the low local currency value, the foreign capital will return to the local equity market to help the KLCI’s rebound in the fourth quarter of this year.
The FBM KLCI declined 5.8%, or 94.58 points, year-to-date (YTD), to 1,532.63 on June 30, 2021, from 1,627.21 on December 31, 2020.
Despite the KLCI’s excellent value currently, portfolio manager Lee Pak Seng of AIIMAN Asset Management (Affin Hwang Asset Management’s Islamic fund management branch) agreed that the lending moratorium had a somewhat muted influence on the equities market amidst the epidemic.
“The forward price-to-earnings ratio of the KLCI is trading at a lower level than its historical average. The market is appealing, but whether it will rerate to previous levels will be determined in large part by the pandemic “According to Lee, the equity market needs to see significant progress on the vaccination front, such as a reduction in daily cases and positivity rates, in order to regain investor confidence.
Lee expects less money to pour into the market given that the government has been fighting the pandemic for more than a year.
“We are unlikely to see similar liquidity-driven flows into equities this round as we did in 2020, despite the lending moratorium. Furthermore, given the country’s restricted fiscal condition, it may be difficult to implement effective stimulus initiatives “Added he.
Stock selection is becoming more difficult.
Some experts believe it is too early to consider it now, as the country prepares for a long-term Covid-19 shutdown.
The focus would be on recovery theme play, according to Loui Low, head of research at Malacca Securities Sdn Bhd, considering the country’s goal of inoculating 80% of the population by the end of the year.
“However, we don’t know when the next step of the national recovery plan will be implemented. Given that the number of cases is not decreasing as projected, which would hinder the economic recovery, “Loui remarked.
Given the looming economic uncertainty, Low believes the FBM KLCI could be skewed to the downside, given the 30 member stocks are often linked to the country’s economy.
Low believes that technology stocks are currently the market’s only bright light.
The key topic, according to AIIMAN Asset Management’s Lee, will still be focusing on an eventual economic recovery.
“Malaysia is one of the markets that has had the lowest year-to-date performance. This is partly due to the country’s high number of instances. This means that the market has likely bottomed unless we expect cases to rebound to or exceed recent highs “Lee continued.
Lee is considering those who will benefit from increased exports and trade diversification, as well as technological advancements and digitalisation.
Stock selecting is becoming more difficult, according to Victor Wan, head of research at Inter-Pacific Securities.
Plantation equities, which continue to gain from high crude palm oil prices, and local electronic manufacturing service companies and technology stocks, which are expected to benefit from increased demand following a global chip shortage, are among Wan’s top picks.
Meanwhile, Danny Wong Teck Meng, chief executive officer of Areca Capital Sdn Bhd, advised investors to use a barbell technique, allocating a portion of their portfolio to value or reopening sectors and a portion to growth sectors.
In terms of value stocks, Wong believes that the valuations of some banking firms are attractive in terms of their price-to-book ratio, and that those stocks are worth revisiting.
While the blanket loan moratorium may result in some net interest margin compression for banking stocks, he believes the impact will be minimal because not all banks have strong exposure to hire purchase loans in their loan portfolios.
Wong recommends the technology sector for growth stocks, believing that these businesses’ prospects are unaffected by increased demand for semiconductors and 5G adoption.
He also advises export-oriented businesses to take advantage of the ringgit’s current low value and rising commodity prices.
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