Malaysia replaces Netherlands in Citi's tactical market allocation

Malaysia replaced Netherlands in basket of bottom-ranked countries under Citi's tactical market allocation for September.

KUALA LUMPUR: Malaysia has replaced Netherlands in basket of bottom-ranked countries under Citi's tactical market allocation for September, which provides guidance on assets or country allocation to fund managers.

According to Bloomberg on Friday, the other countries together with Malaysia in the same basket are Mexico, Belgium, the US and Switzerland.

As for the US, Citi said the country was moved back into the bottom basket due to its poor valuation metrics.

Essentially, countries in the bottom rank will see slower fund allocation for various reasons including valuation, compared with those in Citi's top-ranking countries which are Austria, Brazil, Singapore, Germany and Taiwan.

Bloomberg noted global equities showed signs of resilience and for September, Austria had replaced South Africa in the basket of attractive countries.

Essentially, tactical asset allocation is a more active approach than strategic asset allocation, fund managers can choose to overweight or underweight asset classes based on an analytical assessment of the value of the asset. 

Malaysia's 30-stock FBM KLCI at 1,671 is trading at a price-to-earnings multiple of 18.09 times, which is relatively higher compared with the key Asian markets.

CIMB Equities Research had on Friday raised its KLCI target for end-2016 to 1,730 to reflect the higher three-year moving average price-to-earnings (P/E) of 16 times from P/E of 15.6 times. 

Despite the higher valuations, the research house had introduced its end-2017 target of 1,880 for the KLCI.

This was based on 2018 forward earnings of 16 times.

“Our preferred sectors are still: i) banking, for attractive valuations and earnings recovery in 2017; ii) construction, for newflows and new order book from major infrastructure jobs like the RM28bil Mass Rapid Transit 2 project; and iii) selective smaller caps stocks for superior earnings growth,” CIMB Research said.