Bright prospects or big-cap stocks

KUALA LUMPUR: Given the lacklustre performance of the local small-cap segment recently, investors may find more value in large-cap segment.

Fundsupermart.com research analyst Jerry Lee Chee Yeong believes prospects for big-cap companies look brighter than smallcap companies this year.

“However, despite being positive on the big-cap segment, we believe that the strong macroeconomic outlook is likely to support earnings growth for smallcap stocks.

“Hence, investors should not completely ignore the small-cap companies which would be able to provide investors with the growth element,” he said in a note.

Lee said one of the factors that could potentially hinder the growth of the local smaller companies but support those of large-cap companies this year includes the strengthening of the ringgit.

“As the old saying goes, ‘every coin has two sides’, when one is celebrating the appreciation of the ringgit, exporters would have been hurt by the strong ringgit.

“Within the midto small-cap space, we see plenty of the companies falling under the export category, especially for the best performing sector last year — technology and semiconductor sector — as well as some other sectors like the rubber glove and the furniture sector,” he said.

After being the second-best performing currency in Asia last year, strengthening more than 10 per cent against the US dollar, the ringgit has emerged as one of the strongest currencies in Asia on yearto-date basis as of February 9.

Lee said the return of foreign funds into the local equity market has renewed buying interest in big-cap stocks which subsequently led to the outperformance of the big cap stocks against the small-cap stocks on a year-to-date basis.

He foresees that continuous foreign fund inflow would lift the performance of the big-cap segment as foreign investors usually focus on big-cap companies that they are more familiar with.

As of February 2, the Malaysian equity market posted five consecutive weeks of foreign fund inflows, with foreign investors buying up to US$911.2 million (RM3.6 billion) on a year-to-date basis.

In comparison, with the same period a year ago, the year-todate foreign fund inflow has grown by close to 12 times of the amount registered last year.

With low volatility in the global equity market this year, Lee said the market might be seeing increasing volatility due to lower excess liquidity in the financial markets as more central banks are expected to follow the United States Federal Reserve’s footstep to move towards the normalisation of the monetary policy.

As such, investors might find it even tougher to handpick smallcap companies during this rising volatility environment, especially after three years of outperformance against the big-cap segment which lifted the valuation of small cap companies to a relatively higher level, he added.

Lee recommends an all-time favourite local equity fund — Kenanga Growth Fund— for big-cap stocks.

For growth-seeking investors on small-cap stocks, he recommends Eastspring Investment Small-Cap Fund or Eastspring Investment Islamic Small-Cap Fund.