KUALA LUMPUR: Sentiments on the local bourse will be on the low side this year, after the FBM KLCI (FTSE Bursa Malaysia Kuala Lumpur Composite Index) became the worst performer in the region last year, suffering negative growth of 6%.
“Investors continue to see uncertainties and have concerns about earnings and the policies and politics in Malaysia. However, the market could improve once earnings growth bottoms out and confidence recovers,” Manulife Investment Management (Malaysia) Bhd’s head of total solutions and equities investment Tock Chin Hui said.
Speaking at a briefing on Malaysia’s investment outlook in 2020 here today, Tock said corporate earnings of local companies were expected to improve with the recovery of the external environment.
“They will also benefit from trade diversion (resulting from the trade war between China and the US) and the rebound in CPO (crude palm oil) prices as well as the increased activities in the oil and gas upstream businesses,” she added.
Malaysia has benefitted from trade diversion as a result of the Sino-US trade tension, which has resulted in global businesses diversifying their manufacturing and supply sources away from China.
“We have seen increasing foreign direct investment approvals in the manufacturing sector as foreign multinationals see Malaysia as an attractive base to house their manufacturing and research and development (R&D) activities,” added Tock.
She noted that the global and regional easing policy that took place in 2019 would continue into 2020, driving the search for yield.
As the Sino-US trade tension is expected to continue to roil regional markets and impact investor sentiment, Tock said while investors should be conscious of it, they should also “look beyond short-term headlines so as not to miss opportunities for gains and for exposure to some key investment trends”.
While external factors might influence Malaysia’s equity and bonds markets, these issues would be short-lived due to support from strong domestic activities, Tock said.
On Manulife Investment Management’s (MIM) investment strategy this year, she said the firm would focus on trade diversion beneficiaries, commodities and stocks with earnings momentum.
MIM believes Asian equities offer better risks/rewards in 2020 and that the region offers an attractive diversity of opportunities for investors given global equities are at record highs and bond yields are near historical lows.
Malaysia’s manufacturing Purchasing Manager’s Index (PMI) reached a 15-month high of 50 in December 2019, signalling recovery in the manufacturing sector.
“Hence, we believe stock picking will be key to performance this year. Investors need to take a bottom-up approach that focuses on the fundamentals of companies, and analyse their ability to deliver on their earnings,” said Tock.
She added: “The valuation of Malaysian equities is attractive as the market is trading at the average level of its 10-year historical P/E valuation while Asia ex-Japan and US equities are trading at above their average level.”
On risks, Tock said the key issues were a possible flare-up of tensions in the Middle East as well as challenges to the next phase of Sino-US trade negotiation, given the involvement of intellectual property issues.
Meanwhile, MIM’s head of fixed income Andy Luk Chee Vui said the local bond market was expected to demonstrate resilience and improvement this year.
“Asian fixed income posted strong gains in 2019 in an environment mainly driven by the Fed’s accommodative monetary policy… We believe Asian fixed income will continue to be a relative beneficiary of a favourable macro backdrop in 2020, in which quality Asian credits should be broadly supported,” he said.
Luk added:”We do not anticipate a repeat of 2019’s market movement given the improved growth outlook following the de-escalation of the US-China trade tension, which implies fewer propensities for further monetary and financial easing going forward.
“However, the potential exclusion of Malaysia from the FTSE Russell World Global Bond Index in March 2020, as well as the reduction of Malaysia’s weightage in the GBI-EM Global Diversified Index to make way for China’s inclusion, poses outflow risks.”