Small and mid cap stock bar­gains

Fund man­ager sees low prices as at­trac­tive buys

The Star Malaysia - StarBiz - - Front Page - By TEE LIN SAY and INTAN FARHANA ZAINUL star­biz@thes­tar.com.my

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.

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