It appears that stocks continue to be the favourite of local investors. For Yoong, Malaysian equities still offer one of the best returns.
OPTIMISM is crawling back buoyed by expectations of a US Federal Reserve (Fed) rate cut in September and overall better corporate earnings.
Despite the global crash in early August, equities are not the only place to invest hard-earned money.
In most market situations, certain asset classes perform better than others, at least from the sustainable factor point of view.
A prime example is the fixed-income investment segment like bonds and fixed deposits which have predictable or fixed amounts of interest, regardless of market conditions.
Although not completely risk-free, such investments tend to balance out the risks for the investor who may want to also dabble in other riskier options like crypto and even real estate.
In Malaysia though, it appears that stocks continue to be the favourite.
A head of retail investing at a local bank-backed brokerage favours equities over other investments which he calls “riskier” or “not worth it”.
He prefers stocks, something he is most familiar with.
“Property doesn’t look very appealing now, plus there are a lot of costs associated with buying real estate,” he notes.
He remains optimistic about further upside for the FBM KLCI benchmark, as it has only recovered about 3% from pre-Covid levels, compared to 21% for its Asian peers.
The optimism is also largely underpinned by the Fed’s eventual rate-cut pivot, a soft landing narrative in the US economy and stable corporate earnings amid economic growth.
The appreciating ringgit also lends some optimism.
After the August results season, he remains overweight on the construction, healthcare, oil and gas, property and renewable energy and utilities industries.
Some of his preferred stocks include Sunway Construction, Gamuda, Dialog, IHH, Tenaga Nasional (TNB) and YTL Power.
For ex-investment banker and high net worth investor Ian Yoong Kah Yin, Malaysian equities still offer one of the best returns.
“Malaysian equities have been in the doldrums for the past 10 years after the FBM KLCI reached an all-time high of 1,896 in July 2014.
Golden opportunity for retail investors
“The FBM KLCI is currently about 12% from that high. Bank shares are at historic highs but mid-cap stocks are plunging for numerous reasons.
“Exporters, meanwhile, are impacted by the strengthening ringgit. This is a golden opportunity for retail investors looking for undervalued stocks,” Yoong says.
The proliferation of data centres will boost growth in electricity consumption and therefore the earnings outlook is bright for TNB, Malakoff and other independent power producers, he adds.
“Technology stocks on Bursa were overvalued in 2Q24 with a few exceptions such as QES Group, and the technology sector was trading at astronomical valuations.
“The three-year average price earnings ratio (PER) for the industry is currently 51 times. Granted that the Bursa Malaysia Technology Index has declined by 13% in the past month and selected technology stocks declined by 20%-30%, valuations of many tech stocks are still in the stratosphere.”
Yoong says the most undervalued Malaysian tech stock now is Pentamaster International, listed on the Hong Kong stock exchange.
“It is one of the top four manufacturers of SiC wafer-level test and burns in the world. According to Bloomberg, its current PER is 6.8 times, its estimated PER for FY24 is 5.2 times while its indicative gross dividend yield is 2.9%.”
Yoong also likes the plantation sector, calling it “promising.”
“A few experienced sell-side analysts are forecasting CPO price of RM3,900-RM4,000 for 2024 and 2025, amid stagnant production.
“Plantation land has the potential to be converted for the production of solar energy. Plantation stocks have been sidelined for the past three years and their time in the sun is coming.”
He likes Hap Seng Plantations, Johor Plantations, Ta Ann Holdings, MKH Oil Palm and Sarawak Plantation.
In the face of ongoing tensions between China and the US and Taiwan, Doreen Choo, Eastspring Investments head of investments, says Malaysia appears to be ideally positioned to benefit from China+1 policies (as well as Taiwan+1 policies) as companies seek alternative manufacturing hubs to increase diversification and mitigate natural disaster risks.
“Given the positive macro-economic outlook for Malaysia, we believe that the sectors to benefit will be finance, consumer and construction. The longer-term opportunities are in the tech sector.”
Former fund manager and author of ‘What I Learnt As an Analyst’ Peter Lim Tze Cheng asks, with banks going higher and higher in price since the shocking sell-off of the market earlier this month, should investors adopt the “you jump, I jump” strategy.
Lim who has long been an advocate of semiconductors, continues to advocate this sector into 2025.
“I may sound like a broken record, but semiconductors would be it.”
Elsewhere, he reckons Johor properties are bustling with activity, mostly due to the focus on data centres and the upcoming Special Economic Zone with Singapore, therefore potentially offering investors with some good upside next year.
While it may seem that the stock market remains a firm favourite among investors, data shows that within the alternative investment universe, the crypto market has been performing relatively well this year, thanks largely to regulatory support.
Bitcoin prices are up by more than 32% year-to-date, putting the cryptocurrency on a likely path for its second consecutive year of gains.
Ethereum prices are also higher by almost 12% year-to-date.
According to the Crypto Wealth Report 2024, there are now 172,300 people globally holding more than US$1mil in crypto assets, with the number of Bitcoin millionaires jumping more than 100% to more than 85,000.
This article first appeared in Star Biz7 weekly edition.
