Highlight: Focus on small, mid cap stocks

Business & Markets 2013
Written by Cynthia Blemin & Ho Ching-Ling of theedgemalaysia.com
Wednesday, 08 May 2013 08:42
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KUALA LUMPUR: Small and mid cap stocks are now getting more
attention than the big cap stocks after the conclusion of the general
election (GE13), as the investing public start to hunt for bargain stocks
on Bursa Malaysia.
This is evident from the higher increase in the FTSE Bursa Malaysia
Small Cap Index compared to the FBM KLCI, which tracks the top 30
companies by market capitalisation.
The FTSE Bursa Malaysia Small Cap Index closed 8.3% higher at
12,889 points yesterday, against 11,901.4 last Friday. In comparison,
the KLCI only rose 4.8% to 1776.73 points yesterday from 1,694.77
last Friday.
The KLCI’s close yesterday was its record high, surpassing the record
set a day earlier when it closed at 1,752.02 after the ruling Barisan Nasional (BN) returned to power.
The top five outperforming small and mid cap stocks over the last two days were TEBRAU TEGUH BHD [], MyEG Services
Bhd, Eversendai Corp Bhd, NAIM HOLDINGS BHD [] and Perdana Petroleum Bhd.
Market observers said prior to the GE13, most of the foreign funds were biased towards big cap stocks such as CIMB
Group Holdings Bhd, MALAYAN BANKING BHD [], UEM LAND HOLDINGS BHD [], GENTING BHD [], TENAGA NASIONAL
BHD [] and PETRONAS DAGANGAN BHD [].
“The foreign funds did not look into these smaller caps which were somewhat ignored until yesterday,” Areca Capital Sdn Bhd
CEO Danny Wong told The Edge Financial Daily.
With the uncertainties over the GE13 removed last Sunday, he said local investors are expected to pick up some of the
underperforming small and mid cap stocks.
“Naturally, the small and mid caps will play a catch-up game. I would not be surprised to see eventually the underperformers
gain more on parity,” Wong said.
He noted that it is a matter of time for blue chip stocks to pause in their rise due to profit taking, which will result in the
laggard small and mid cap stocks taking their turn to gain traction in their share prices.
Gan Eng Peng, head of equities at Hwang Investment Management Bhd (HwangIM), said investors are moving from the top
liners to the second liners due to the current conducive buying environment.
“As such, there will be a hunt for attractive beta and growth stocks, which are traditionally found in the small cap space,” he
said.
Gan believes stocks such as DKSH Holdings (M) Bhd, Eastern & Oriental Bhd, Crescendo Corp Bhd and TIME DOTCOM
BHD [] willl do well. These companies have unique business models and are undervalued, especially when compared with
some other small cap stocks in Southeast Asia which are currently trading in excess of 20 times price-earnings ratio.
He said with the election over, analysts are revising their stock calls and re-pricing these assets. Sectors avoided prior to
GE13 are getting attention now, especially those involved in nation building and economic development activities such as oil
and gas, financial, CONSTRUCTION [] and media.
Phillip Capital Management Sdn Bhd chief investment officer Ang Kok Heng said there is now a second wave of buying,
mainly from foreign funds which previously kept their money on the sidelines before the GE13.
“What happened in the market today [yesterday] is the same thing that happened on Monday. There is some local buying
from both institutional and retail investors, and of course some profit taking here and there, but the rally is mainly from foreign
investors,” he said.
Ang, a fund manager with over 30 years of experience in the asset management industry, also noticed that these stocks are
very thinly traded, which makes it easy for their share prices to go up with every transaction.
“It’s hard to tell when the rally will slow down but from what I can tell, investor appetite is still strong. Once their appetites
have been satisfied, we can start to see the market stabilising,” he said.
Meanwhile, Gan said, the local bourse will continue to remain firm due to the buying frenzy post-election. The market will be
driven by second-tier stocks.
“We think the Malaysian market has another 10% to 15% upside for the rest of the year as it has lagged 5% to 25% behind
other Southeast Asian markets in the last six months,” he noted.