What fund managers say

Scott Lim

MIDF Amanah Asset Management chief executive officer and chief investment officer Scott Lim reckons the recovery in the market that investors saw during the first half (1H) of the year was mainly driven by optimism. “The optimism at the moment is not backed by very concrete evidence. We actually need that evidence for a smooth path to recovery. But, definitely the conditions have stopped worsening. Whether we have reached the bottom now is too early to tell,” Lim said. “The only surprise that came from the first half was that the trading volume came back rather strongly for some speculative companies. Other than that, the performance of companies was not very surprising. This is because they were from a low base so their results were within expectations,” he added. Moving into the second half (2H), Lim said investors can look forward to see if some of the signs for the so-called “green shoots” at the earlier part of the year will take shape. “Whether the recovery is sustainable is a question mark. We’ll get more evidence whether the recovery is sustainable. For 1H, the optimism has started to come back and in the 2H, we need to see evidence to justify that hope. It’s tricky,” he added. Lim said if there isn’t enough evidence to show that a recovery is evident, the market is in for rough ride. “This is because the recovery was based on hope and optimism and if those are proven wrong, the market will have a relapse and it’ll be more painful.” Lim said he was “not giving a very strong call for the market” at the moment. “I would rather take a backseat and watch for now. I am indifferent to the market,” he said.

Choong Khuat Hock

Kumpulan Sentiasa Cermelang Sdn Bhd’s director of research and fund manager Choong Khuat Hock believes the rally in the 1H of the year was driven by strong liquidity. “The markets all bottomed around March and there was a sharp recovery and a lot of it was due to strong liquidity.

A lot of fund managers locally and globally have a lot of cash and when the rally happened, it had forced them to participate,” he said. As we move in 2H of the year, Choong said a fundamental recovery is crucial as what the market has reflected so far is based on ‘a lot of potential recovery’. “We haven’t seen clear signs.

Things have yet to stabilise… but it’s likely not to get worse. We have not seen a sharp recovery so far. We need a recovery by year-end to justify the strong market conditions. If the economy remains weak at the end of year, it’ll have a negative impact on the markets,” he added. Choong’s top three picks from the FBM KLCI are DiGi.Com Bhd, YTL Power Bhd and Parkson Holdings Bhd. He advises investors to stick to names that are ‘relatively defensive’ like DiGi and YTL Power. “YTL Power’s earnings from utilities are stable. Whereas for DiGi, its revenue is also stable as no matter how bad the economy is, mobile phone services are essential in this day of age,” he explained. He added that Parkson’s potential catalyst was its exposure to the China market.

Pankaj Kumar

Kurnia Asia Bhd’s chief investment officer Pankaj Kumar Bipinchandra said for the first half of 2009, the local bourse did perform well but did not rise as much as some other Asian markets did. “Assuming we close the first half of the year at the level we are today, which is 23% up year-to-date, as far as the local index has gained, it has performed well but not as good as some Asian markets.

But compared to the Malaysian market’s fall last year, don’t forget, we didn’t fall as much either,” Pankaj said.

Pankaj added that the rally we’ve seen in the equity markets so far this year has been driven by expectations and may have gone too far ahead of fundamentals. “There must be some form of meaningful pullback to absorb the rally to bring the equation closer to the reality of economic numbers and market expectations,” he added. Pankaj’s top three picks on the new FBMKLCI are Tenaga Nasional Bhd, Resorts World Bhd and Tanjong plc.

Chris Eng

OSK Investment Research head Chris Eng believes that the jump in the first half of the year may have been too high too soon. As a result, he expects a retracement — a reversal in the movement of a stock’s price, countering the prevailing trend — to happen in the second half of the year. “For the second half, we expect a retracement to happen and it would bring the market back to reasonable levels. Reasonable in this case would be 1,000 before a gradual strengthening towards year-end,” he noted. He added that his top three picks for the new FBMKLCI are Resorts World Bhd, Axiata Group Bhd and Public Bank Bhd. “For Resorts, we think there is the possible M&A angle and as it is newly constituted into the KLCI, it will likely see money flowing into it. Also, we think its operations are fairly resilient and even if the economy does suffer a very slow recovery, the company will do quite well,” Eng said. “For Axiata, we like the long-term prospects, it has growth in Indonesia, India and Sri Lanka. Meanwhile, for Public Bank, we think it’s more of a defensive bank. We expect the market to retrace inevitably, but Public Bank will do quite well because of its defensive earnings and is well run by its management,” he added.

Teoh Kok Lin

Singular Asset Management Sdn Bhd founder and chief investment officer Teoh Kok Lin said performance of Bursa has lagged the performances of other regional stock markets in 1H 2009. “This, however, is not unexpected given that the Malaysian stock market was among the most resilient during the sell-down in 2008.

“China and Indonesia have been the star performing stock markets — given that their economy is more domestically orientated (rather than overly dependent on exports),” he told The Edge Financial Daily in an email reply.Teoh said that after the strong rally in share prices globally and in Malaysia in 1H2009, the next six months were going to be more challenging. “Stock picking will become more important — well-managed companies will continue to perform well. We continue to see many great companies trading at attractive valuations in Malaysia and in the region (especially in China and Indonesia),” he said.Construction, building materials, plantation and China-related plays are likely to continue performing well, he added.

Anthony Dass

Inter-Pacific Research Sdn Bhd head of research Anthony Dass said the KLCI’s 22.8% rise year-to-date had outpaced actual economic fundamentals.Dass cautioned the market might not make significant headway as there were signs of disconnection between valuation that were at mid-cycle levels and the economic outlook which is to be in recession.While the KLCI might inch upwards taking advantage from the positive regional movement should there be positive news driving the markets, he said the upside to KLCI could be limited, with Malaysia likely to underperform in a potential rally as the large caps have limited upside potential.“We only plan to revise upwards our view if we can firmly conclude there are growing signs of strong policy implementation and structural change as proposed; strong earnings upgrades and we find a widening regional valuations gap.”Inter-Pacific Research is focused on a balanced strategy and it favours stocks for yields, such as Berjaya Sports Toto, Tanjong plc and YTL Power, as well as AMMB Holdings and Public Bank Bhd for positive earnings or news.