THE local bourse is perceived as being more resilient and defensive compared with other markets, and is likely to be range-bound next week, say fund managers who also advocate that retail investors should take the opportunity of price weakness to buy value stocks.
Rakuten Trade head of equity sales Vincent Lau says that next week, the sentiment on the local bourse would continue to be jittery as investors continue to track movements on Wall Street.
“While Bursa Malaysia seems to be a little bit more resilient compared with other global markets, there will still be a lot of volatility. Next week, the local bourse is likely to be supported at the 1,560 to 1,570 levels,” he tells StarBizWeek.
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Lau notes that globally, investor sentiment is bearish and “there is no where to hide”.
“Perhaps there will be more clarity in June, if the United States Federal Reserve (Fed) raises interest rates by another 50 basis points,” he says. Still, Lau thinks the downside risks for Bursa investors are limited.
“There’ll be some bumps along the way, but retail investors should look for pockets of opportunities on Bursa – perhaps in selected oil and gas stocks (given the high crude oil prices), and stocks with recovery themes (as Malaysia has re-opened the economy) in the consumer and tourism-related sectors,” he says.
Lau also points out that the estimated RM40bil withdrawal by members from the Employees’ Provident Fund (EPF) under the Special Withdrawal facility, would result in a “fairly good multiplier effect”.
“I also believe the valuations for tech-related stocks on Bursa are becoming more attractive,” he says.
Meanwhile, Fortress Capital Asset Management CEO Thomas Yong points out that the correction on Wall Street has been anticipated by investors, after the strong rally fuelled by quantitative easing during the pandemic.
“Nevertheless, market sentiments across Asia will be affected despite having improving fundamentals from the reopening of economic sectors and geographical borders. We think that markets would remain volatile until there is a clearer picture on inflationary concerns in advanced countries that could tame the hawkish stance currently adopted by major central banks,” says Yong.
He also notes that Malaysia has always been regarded as a defensive market, and should as a result not have massive price movements unless there is a major shift in investor expectations.
As for the investing strategy of retail investors, Yong says they should always remind themselves of their investment objectives regardless of the market conditions.
“When market sentiment is volatile, retail investors have a tendency to invest according to their near-term experiences rather than the business’ long-term fundamentals. At this juncture, investors should focus instead on the quality of earnings recovery for these companies,” he says.
Yong points out that the key is to identify the sustainability of earnings beyond the pandemic.
“We believe that we are still in the early phase of re-opening after the pandemic and there are plenty of opportunities for certain sectors to perform, such as tourism, food and beverage, and retail,” he says.
Tradeview Capital chief investment officer Nixon Wong says next week, Bursa Malaysia will stay relatively more resilient overall compared with other developed markets, but remain range-bound as there is some “cushioning effect from the high commodity prices”.
Nixon points out that year-to-date, foreign investors have been net buyers on the local bourse and “it’s a lot more compared to last year, when they were net sellers. Year-to-date, net buying by foreign investors is around RM7bil versus around the RM3bil net sell in total during the same period for 2021.
“Recently, foreign funds view the Asean markets, which include Bursa, as defensive because of the exposure to commodities,” he says.
However, Nixon is concerned about the potential for the weaker ringgit to create some downward bias on Bursa in the short-term due to “an outflow of foreign funds as a result of the rate differential against the United States Federal Reserve’s (Fed) policy rates.
“Today, the ringgit is around the RM4.37 range (versus the US$) compared with its RM4.20 levels over a month ago. This is due to the yield differential, as a result of the hawkish Fed policy rates versus the local overnight policy rate, which is still expected to rise but not as fast as the United States,” he says.
Nixon said next week, investors will also be watching events like the central bank’s Monetary Policy Committee (MPC) meeting with “the expectation that is for interest rates to continue to remain accommodative to support economic recovery” and the release of the gross domestic product (GDP) data.
Nixon believes that the present weakness on the local bourse offers some buying opportunities, and advises retail investors to adopt a “balanced strategy and stay nimble, and not deploy all your ammunition in one shot” in view of the risks on the macroeconomic front such as the Russia-Ukraine war, supply chain shortages, continued focus on the inflation data and “even recession risks at the end of the year”.
He says retail investors should focus on economic re-opening plays, selective consumer discretionary stocks and also real estate investment trusts (REITs) that now offer forward looking dividend yields at around the 5% level.
“For those with a higher risk appetite, and who want to profit from short-term trades, they may want to focus on some commodity names as they are still in an environment of elevated prices,” says Nixon.
Areca Capital CEO Danny Wong says the current market sell-down is a sentiment issue.
He notes that the expectation is that the Fed may deliver five more rate hikes in 2022, taking the Fed funds rate to above 2.5% or even 3% by year-end.
“Bank Negara has not reacted but other central banks like the Bank of England have reacted in raising rates. For our equity market, in the short run, it is still driven by the external factor on the sentiment side,” he says.
However, he says regarding the fundamentals, the local bourse has bright spots as the recent corporate earnings reports have highlighted.
“Companies in the tech sector have reported good results. So, it is a tussle between whether you buy ‘value’ or you follow the current weak sentiment. To us, as long-term investors, we look beyond the short-term sentiment. We will collect when the share prices create some value for us,” he says.
Danny says there is value in some of the beaten-down names in the tech sector, and is also bullish about the banking sector in Malaysia.
“Sooner or later, there will be pressure on the central bank to raise rates and banks will benefit.”
He says besides the tech and banking sector, long-term investors may want to look at the electrical and electronics industry and export-related sectors, as there is still a chip shortage globally.
“Consumer discretionary stocks also stand to benefit as the economy re-opens,” says Danny.