Saturday January 12, 2013
Expensive equity valuations?
KUALA LUMPUR: Malaysian equity valuations need to be cheaper before investors will take a closer look at the stock market, said Standard Chartered Bank's chief investment strategist Steve Brice.
“The Malaysian market had done very well last year, which led to the high valuations,” he said at a media briefing.
The benchmark FBM KLCI ended 2012 at an all-time high of 1,688.95 with a 10.34% gain for the year. It hit another record on Jan 3 when it closed at 1,692.65.
Brice has an “underweight” call on Malaysia and Indonesia with heightened political risks a major cause for concern in Indonesia versus Malaysia while Thailand would outperform.
“We're concerned about unrest in Indonesia as the outcome is highly uncertain versus Malaysia,” he said, adding that the underweight calls on both markets were relative to China, which would lead growth this year.
Besides China, Brice has overweight calls for Hong Kong and South Korea.
Nevertheless, Brice, a member of the wealth management group of the bank, said South-East Asian equity markets would continue to see significant fund inflows as Western investors chased higher yields.
“We expect China to have a U-shaped recovery,” he said, with the global economy to see a transition to stronger growth in the second-half of the year after a period of volatility in the current quarter.
Brice said the risks to outlook were from the US fiscal situation and debt ceiling issues. “Global growth expected to accelerate in the second-half although a full-year recession in Europe is possible,” he added.
On a sectoral basis, Brice said high-yield stocks to look out for in South-East Asia included real estate investment trusts and at the global level, technology stocks, which would ride on the recovery for consumer electronics.
While the preference for technology stocks would benefit North-East Asian markets, he said South-East Asian technology companies that support the shift from personal computers to tablets would also benefit.
Meanwhile, senior investment strategist Manpreet Gill said Asian local currency bonds were still attractive due to their governments' low debt, stable interest rate regime and growth outlook.
He also recommends high-yield US dollar-denominated non-investment grade bonds for those chasing yields but said investors should look to bonds with a shorter maturity period of one to three years due to interest rate risks.
The US Federal Reserve's policymakers had previously committed to holding rates near zero through mid-2015 but in mid-December indicated that rates would remain near zero until unemployment falls to at least 6.5%.
The latest data showed unemployment held at 7.8%.
Manpreet said another reason to buy into Asian currency bonds would be for the currency exposure.
“Asian local currency bonds are still attractive and there's still room for improvement,” he said.
Manpreet expects the ringgit to hit RM2.90 to the US dollar by year-end, which would not be much more of an appreciation versus the rest of the region as global macroeconomic newflows such as the US fiscal policy and debt ceiling talks would take centre stage.