Strongest FBM KLCI earnings growth likely since 2014 PETALING JAYA: Optimism over the Covid-19 vaccine developments and improving corporate earnings will continue to drive global equity markets including Malaysia in 2021, say analysts. AmFunds Management Bhd (AmInvest) equities head Andrew Seah Saik Weng is projecting a double-digit rebound in corporate earnings, and retail participation is expected to stay strong. “We are hopeful of foreign inflows in anticipation of a weaker US dollar versus emerging markets’ currencies, ” said Seah, who was among the presenters at the “What and Where To Invest 2021” online event organised by FSMOne Malaysia. On the bond market, Seah noted that accommodative monetary policies are likely to continue to prevail with the overnight policy rate (OPR) could be maintained at its all-time low at 1.75%, although this scenario is still data dependent. “We are unlikely to see foreign outflows, unless global bond yields increase substantially. “Overall, credit environment will be relatively stable, and the higher government bond supply is expected to finance the fiscal deficit, ” he added. However, there could be potentially less demand for government bonds from typical institutional investors such as the Employees Provident Fund (EPF) and banks. “So, the bond market may see limited upside relative to 2019 and 2020, but the lack of selling pressure will see it remain supported, ” Seah pointed out. As for the investment strategy this year, Seah’s preferred asset class is equities. “We like the United States as the net long positioning is not at overbought levels. There is a new American president and growth is on track, ” he said. Seah also likes China, as the country has retained investors’ confidence on economic recovery and in containing the Covid-19 pandemic. “More importantly, China has the e-commerce platforms and technology plays. “That’s where interest will be. Also, we will be looking at tech companies in South Korea, Taiwan and mainly North Asia. These will be our preferred exposures for 2021.” Real estate investment trusts (REITs) are also preferred for retail sector recovery play and dividend income to manage volatility. As for the bond market strategy in 2021, Seah prefers corporate bonds over government bonds. “We think that risk-free rates are almost bottoming, unless economic recovery expectation reverses. Credit spreads are still relatively healthy for AAA and AA credits at 75 to 120 basis points, ” he said. However, Seah pointed out that market risks remain concerning Covid-19 vaccine developments. “It all depends on when the vaccines can be shipped out and when herd immunity can happen. We believe that markets will revert to risk-on again (on positive vaccine newsflow).” Meanwhile, Principal Asset Management Bhd chief investment officer Patrick Chang Chian Ping is bullish on Asia and Asean equities, particularly in banks and e-commerce companies, and for recovery play – the travel and tourism sector. “We think 2021 will be about investing into cyclical, small and value sectors. The rotation may have legs. When the recovery continues, we saw that in November and December 2020, when banks started to re-rate substantially. We expect a recovery in the third or fourth quarter of 2021 with Covid-19 vaccine rollout, ” explained Chang. “The other interesting sector is tourism in Asia, particularly in Asean nations such as Thailand, Singapore and Malaysia, ” he noted. According to Chang, Asia is home to a lot of high yielding assets. “As a percentage of the total MSCI All Country World Index (ACWI), Asia-Pacific ex-Japan has one of the highest representations of the higher yielding assets. “Our Asia-Pacific Dynamic Income Fund, for example, generates quite decent capital growth with income as well. “We put more significant bets, for example, in companies like Samsung Electronics, Taiwan Semiconductor Manufacturing and LG Chem, ” he said. Chang also pointed out that e-commerce penetration in Asean, relative to its population, is still in infancy. In 2019, e-commerce penetration in China, relative to population, was at slightly over 20%, while in Malaysia, the Philippines, Thailand and Vietnam, it was less than 5%. “The e-commerce trend will continue to grow and Asean can be a mini-China in terms of the demographic dividend. We will hear more about e-commerce companies in Asean being listed. “For example, Sea Ltd which owns Shopee (an online shopping platform) is listed on the New York Stock Exchange and has contributed significant growth to some of our portfolios, ” said Chang. Meanwhile, Kenanga Investors Bhd equities head (investment) Christopher Kok Keng Fai said the local bourse would continue to be supported by the accommodative monetary policy, low interest rate environment and fiscal stimulus to boost consumption. “With low interest rates, people are moving money into the markets and risk assets, in the hunt for higher returns, ” he said. Regarding the recovery theme, Kok pointed out that 2021 is expected to see the strongest FBM KLCI earnings growth since 2014, with consensus among research analysts forecasting corporate earnings per share (EPS) growth of 38.8%, rebounding from a 14.3% decline in 2020. “This would be in line with an economic rebound – driven by gloves, financials, plantations, utilities, oil and gas and gaming. Glove earnings this year should be at a record high, ” he said. Investors should also take note of the low foreign shareholding on the local bourse, noted Kok. Eastspring Investments Bhd head of investments Doreen Choo concurred, saying that in 2020, the local bourse saw net foreign selling of RM24.6bil (more than doubled 2019’s RM11.2bil). “Perhaps this was because of the political instability, which results in policy uncertainty and also environmental, social and governance (ESG) issues, ” she said. However, Choo said retail participation was still high and retailers were net buyers in 2020, to the tune of RM14.2bil for Bursa Malaysia, larger than local institutions at RM10.4bil. She also expects 2021 to be a better year for corporate earnings, rebounding from a low base in 2020 – although the current movement control order (MCO 2.0) is a speed bump in the overall recovery. Choo also prefers equities to fixed income, in terms of asset class, based on expectation of a corporate earnings rebound. “We have a more positive stance now as the Covid-19 vaccine is currently being administered globally. The new American president should be more positive for emerging markets. “There are pockets of opportunities as markets rotate into Covid-19 impacted sectors for a cyclical recovery in 2021, ” said Choo.
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