Investors have 'overwhelmingly underweighted' Malaysian stocks, says CIMB Research

by **Cals** Wed 15 Jul 2015, 21:19

Investors have 'overwhelmingly underweighted' Malaysian stocks, says CIMB Research

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By Levina Lim / theedgemarkets.com | July 15, 2015 : 11:38 AM MYT

KUALA LUMPUR (July 15): Investors were “overwhelmingly underweighted” in Malaysia due to the numerous headwinds facing the country, but appetite for fundamentally-sound small-caps stocks remains strong, said [size=14]CIMB Research.

“We were surprised [as to] how underweighted Malaysian funds were, as they joined their foreign counterparts in keeping positions to a minimum and raising cash holdings,” said head of Malaysia research Terence Wong, in a note yesterday (July 14).

He said many investors are keen to know as to when there will be a recovery in Malaysian equities. Similar to last year, foreign funds were concerned about Malaysia's macro picture from the economic and political perspectives.

“Many wanted to know [as to] when to position for a possible recovery, which we said could come 3Q, as the confluence of negative factors should provide a good opportunity for investors to accumulate.

“We believe that, by 4Q, most of the bad news would have been priced in and the market should stage a recovery,” said Wong.

Nevertheless, he pointed out that appetite for bottom-up, fundamentally-sound stock ideas, particularly from the smaller-cap space, remained firm.

“We believe larger-cap defensive stocks can provide investors a margin of safety, but it is still the smaller caps where investors will drive alpha.

“We expect smaller caps to outperform as 2015 is a stock-picking year and our top picks include MyEG Services Bhd ([You must be registered and logged in to see this image.] Financial Dashboard), Prestariang Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) and Only World Group Holdings Bhd, while the two higher-risk higher-return picks are IFCA MSC Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) and GHL Systems Bhd ([You must be registered and logged in to see this image.] Financial Dashboard),” he said.

He noted while Singaporean investors had largely underweighted Malaysia due to concerns over 1MDB and Malaysian politics, they were interested in smaller-cap stocks with “interesting and exciting prospects”.

“Singapore investors lamented the fact that larger caps were underperforming, but signaled their delight that there were many smaller-cap stocks with interesting and exciting prospects, unlike in Singapore, where such companies were lacking,” said Wong.

He added that for larger-cap stocks, CIMB Research likes Gamuda Bhd ([You must be registered and logged in to see this image.] Financial Dashboard), IJM Corp Bhd ([You must be registered and logged in to see this image.]Financial Dashboard) and YTL Corp Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) for exposure to the construction and infrastructure sector, as well as Petronas Gas Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) and Tenaga Nasional Bhd ([You must be registered and logged in to see this image.]Financial Dashboard) for the relative safety of the utilities sector.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)
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