28th Nov 2012
KUALA LUMPUR: The outcome of the upcoming general election (GE) will set the benchmark to determine the level of investor appetite, which is currently suppressed, according to Eastspring Investments Bhd chief investment officer-equities Yvonne Tan.
“Due to this uncertainty, we are already seeing some selling out mainly by local institutions but foreign investment inflows are actually quite steady.
“A lot of money is staying on the sidelines now where some equity funds have the mandate to hold on up to 25% cash. Political risk could pose a major overhang to the stock market but as long as there is no major shocking news in the GE, money would start flowing into the market again,” she told the press after the Regional & Malaysian Economic Outlook for 2013 presentations yesterday.
Looking at various upcoming events, Tan predicted the most feasible window for calling elections would be in March next year.
Without siding any political wing, Tan said any kind of uncertainties would not be good for the equity market, and if the Government continued to rule after the GE, it would be quite positive to boost investor appetite, who are now holding on to their cash.
On the contrary, if the Opposition should come into power, Tan said as in instances elsewhere, this can be quite negative for the stock markets as there would be a lot of uncertainties.
“If this happens, foreign investors might want to stay out of the market until things get clearer and certain,” she said.
In a broader sense, Tan said there was an ample liquidity in the market and corporate earnings had been resilient.
“Corporate earnings have been rising, are forecast to be around RM35bil this year and nearing RM40bil next year.
“Year-to-date, fund raised via initial public offerings in the country was the highest in the region at RM18.3bil and Bursa Malaysia is expected to repeat the success next year,” she said.
Tan added that although Malaysian equity valuation was not cheap, compared with other Asian counterparts, it was not stretched, compared with its own historical long-term average and it was also well supported by local institutional funds.
At the macro level, Tan said it would still be a growth story for Malaysia's economy next year driven by domestic consumption.
Malaysia's third-quarter gross domestic product (GDP) grew by 5.2% year-on-year, better than market expectation. It is forecast to grow by 4.5% to 5.5% in 2013.
“It will also start a investment revival, led by the private sector, especially in infrastructure and oil and gas spending,” she said.
Externally, Eastsprings Investments (Singapore) Ltd global strategist Robert Rountree said headwinds in the eurozone and the United States were blowing away while China's economy was cooling down. “Overall, the negative perception is much stronger than the reality.”
For example, Rountree cited although eurozone's budget deficit as a percentage of GDP was not improving as much as they would like it, it was getting better.
“In fact, we made quite good money in Italy, Germany and the United Kingdom.
“Although European banks remain highly leveraged, the top 22 banks in the US loan-to-deposit ratio remain healthy and the top 26 Asian banks are in excellent shape,” he said.
For the United States, Rountree said the underlying growth was encouraging with increasing retail sales and its high yield stocks were one of the best performing assest classes.
On Asia as a whole, Rountree said the outlook was still good even after all the forecast downgrading “In general, Asian cyclical sectors are looking attractive compared with Asia's defensive sectors.
“For China specifically, although growth is slowing, it is still good with forecasted growth of 8.1% next year,” he said.
[Source]
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