Small and mid cap stock bargains

Fund manager sees low prices as attractive buys

PETALING JAYA: With the small and mid cap stocks experiencing a “meltdown” over the last eight weeks, the time to buy has arrived.

The price of small and mid cap stocks have significantly retraced to multi-year lows on the back of panic selling that doesn’t really make sense. This has provided an opening to buy, said Affin Hwang Asset Management Bhd managing director Teng Chee Wai.

“I feel very tempted to buy on dips. I am not saying we are out of the woods. The volatility will continue and a rebound will likely be range bound. You won’t see it going up in a straight line. However, the time to buy is when nobody is buying. Right now the market is reacting on a short-term basis. We should look at it over the long term and ignore the noises,” says Teng, who manages a total of some RM47bil.

On a side note, he added that Affin Hwang has experienced very little redemption despite the rout in markets and this was rare, considering that volatility is still very high.

“We were ready and expecting the redemptions to come. However it didn’t happen. I think a lot of investors are starting to have a much longer time frame. While they aren’t putting fresh capital into the market, they aren’t envisioning a doomsday scenario either,” he said.

He added that once the elections are over, Malaysians will have political uncertainty out of

the way, which will be a huge relief. The focus will once again return to the economy, where earnings and fundamentals are improving. Generally too, the market tends to do better once elections are over.

While the FBM KLCI is at a fouryear high and is up 3.99% on a year to date basis at 1,868, the same cannot be said about the small and mid cap stocks.

The FBM Mid Cap Index, which track companies with a market capitalisation of between RM200mil and RM2bil, has plunged more than 23.2% since the beginning of the year. This is the lowest since September 2015.

Nonetheless, it rebounded by 9.7% last week as the overall market sentiment improved.

“The way these stocks have been sold down is as if there is panic. It just doesn’t make sense when stocks such as WCT Bhd is now trading at its 2½-year low, when the earnings are getting better,” he says.

He added that companies such as VS Industries Bhd, SKP Resources and Denko Industrial Corp Bhd, which are the manufacturers of the Dyson products have been hit very sharply, and hence are starting to look interesting again.

Darling stock VS Industries which has been on a virtual uptrend over the last one year, hit its high of RM3.23 on Jan 25 this year, before plummeting to its low of RM1.97 on April 4. Since then, it has rebounded to settle at the RM2.27 level.

Meanwhile SKP Resources which also hit its year high of RM2.35 on Jan 8, also took a battering during the selldown to hit its low of RM1.35 on April 5, before subsequently settling at RM1.55 on Friday.

Teng says that in the tech space, valuations of the mid cap stocks such as Inari Amertron Bhd and Globetronics Bhd have also returned to more palatable levels.

Blue chips, on the other hand, are starting to look pricey, and Teng would be looking to trim some of his positions.

While most people tend to place a lot of focus on the amount of money foreigners bring in, with the belief that foreign money is a huge factor in propping up our market, Teng disagreed.

“The foreigners will come and go. In fact, Malaysia’s weightage on the MSCI index has declined, meaning we are increasingly becoming a marginalised market.

“What is more important to note is that a lot of local wealth has been deployed into our domestic market. Our local institutions and funds are growing and we expect this to continue.”

On the global front, Teng does not see a recession happening based on the current scenario.

He sees the US-China trade war issue more as posturing and negotiations.

“Ultimately, my stand is that US President Donald Trump is a smart and rational person. I would assume he would want to pursue a second term as president and hence would not want to inherit a broken economy,” he says.