Bullish momentum likely to continue

A number of fund managers are recommending Malaysian stocks

PETALING JAYA: A growing number of equity research firms and fund managers are advising their clients to buy shares in companies listed on Bursa Malaysia, citing the robust economic growth and strong ringgit as key factors driving up asset prices.

The higher price of crude oil, which has steadied at just below US$70 a barrel, is also helping to whet foreign investor appetite for local stocks.

Overseas fund managers have pumped in almost RM2.5bil into the local bourse over the past three weeks, on top of the RM10bil that came in last year, according to data by MIDF Research.

Nomura Global Research pointed out that Malaysian stocks should continue their bullish momentum this year on the back of solid economic growth, strengthening ringgit as well as improving corporate margins and revenues.

It concurred that the benchmark FBM KLCI would move higher during election years and that foreign inflows into local stocks would continue until the second quarter of the year.

“Towards the second half of the year, focus will again shift back to the improving earnings momentum,” it said in a report yesterday.

Meanwhile, UOB Asset Management executive director and chief executive officer Lim Suet Ling said that based on historical trends, the local bourse would normally be flat leading up to a general election (GE), which is likely to take place in March.

“However, we think that much of the uncertainty has already played out, with Malaysian equities lagging behind their regional peers in the last quarter of 2017.

“We believe that any overhang from the upcoming GE should be limited,” she said in a statement yesterday.

Additionally, Lim said that investor-confidence might rebound after the GE.

The FBM KLCI has been on a run, rising more than 2% in the last three weeks after it had gained just slightly over 9% in 2017.

Yesterday, the index slipped into the red during mid-day trade before closing 4.32 points higher to 1,833.15 points — a sharp pick-up ahead of the two-day Invest Malaysia conference that will begin in Kuala Lumpur today.

The increase in the index was also in line with the regional markets on upbeat global earnings reports and the bullish mood lent by Wall Street’s record close the previous night.

China’s Shanghai Composite Index rose 20.05 points to 3,430.55 on the strength of banking and energy shares.

In Japan, the Nikkei ended half a per cent higher at 22.523.15 points ahead of a national holiday on Thursday.

Taiwan’s Taiex was 0.4% higher at 10,822.59 points, while Singapore’s Straits Time Index gained a quarter per cent to 3,432.75 points.

The ringgit, which many point to being an unseen gem, can no longer be ignored by investors this year.

Yesterday, the currency continued to strengthen against the US dollar, trading at RM3.92 – the highest in 18 months.

It had depreciated by about 35% against the US dollar from January 2014 to September 2015.

Foreign investors continued to buy Malaysian stocks last week. Year-to-date, net inflow was higher compared with Thailand, Indonesia and the Philippines, according to MIDF Research.

Foreign investors bought RM702.2mil worth of local equities last week, marking the fourth week of inflows.

“The foreign buying momentum continued for the fourth consecutive week on Bursa, although the level seems to be gradually decreasing,” MIDF Research said in the report.

Nomura is targeting the KLCI to end the year at 1,900 points, representing a 4% upside and a 2018 forecast price-earnings ratio of 16.7 times.

“We forecast a 5% earnings per share growth for the broader market this year, which will make stock selection important,” it said.

Its top recommendations for the year included Malaysia Airports Holdings Bhd, AirAsia Bhd, Dialog Group Bhd and CIMB Group Holdings Bhd.

Meanwhile, Lim of UOB suggested that investors to be cautious this year and “not get carried away” by the market’s strong investment performance last year.

“The top risks in 2018 include inflation surprises, a slowdown in China’s growth and geopolitical tensions.

“A quick rise in inflation may adversely affect the value of both equity and fixed-income securities,” she said.

For instance, a sudden rise in inflation may heighten uncertainty about the economy, leading to lower earnings forecast for companies and lower equity prices, she added.

“This is why it is important that investors remain vigilant, even in an equity bull market such as the one we are experiencing now.”