KUALA LUMPUR – Valuations of the Malaysian stock market have been getting less expensive, which could sustain its momentum in the next 12 to 18 months, coupled with the pick-up in consumer stocks and oil prices, according to UOB Asset Management (Malaysia) Bhd chief investment officer Francis Eng.
It has not come down so much however for UOB to consider investments in Malaysian equities for its latest United Global Quality Equity Fund.
“When you look at the global scale, either the valuation is a little bit higher than the equivalent and in terms of return of excess cash, the global companies that we identified are ahead of our Malaysian companies.
“This is a global fund, we’re looking for value globally. I think for Malaysian funds, we tend to be Malaysian-centric and more regional, so for this global fund, quite a number is into the US market, China and Hong Kong,” UOB Asset Management Lim Suet Ling told a media briefing here yesterday in conjunction with the fund launch.
UOB is looking to achieve a fund size of RM100 million for the United Global Quality Equity Fund, which looks to offer an annual return of 8% to 12% over a medium term of three years and above.
The manager of the fund adopts a bottom-up, fundamental investment approach to identify high-quality, growth-oriented companies that are trading at a discount to the market.
The fund is 60% invested in the US and North America and 14% in emerging markets.
“Generally, Malaysia is a slightly more expensive market. We have always tended to trade at a premium to our peers. But if you look at it now where Malaysia is trading relative to its historical average, we’re quite close to mean, neither expensive nor cheap,” he opined.
Eng also noted that the rise in consumer stocks will help drive the recovery of the market.
“Consumption has bottomed out. If you look at the MIER consumer sentiment index, it started to pick up already. Consumers have adjusted to the GST (Goods and Services Tax) and weak ringgit,” he added.
Eng favours the construction, palm plantation and consumer sectors.
The rise in oil prices is also a catalyst for the local stock market following The Organisation of Petroleum Exporting Countries’ (Opec) decision to cut global production, according to Eng.
“If you look at oil … oil is a big factor for our market. I think most people are forecasting that oil demand and supply dynamic could look better over 12 to 18 months, so it will be positive for our market,” he said.
Eng opined that the growth in the emerging markets will still outpace the developed markets despite rate hikes in the US.
“In the low interest rate environment, people are searching for returns and emerging market is one of the bright spots where you still get relatively good growth.
“And at the time with the Brexit, fund managers are re-looking at their asset allocation and money has been shifting out of Europe, emerging markets will be benefiting from that flow of money,” he said.