FBM KLCI may test 1,800 level in 2016 — AIA fund manager

by **Cals** Tue 01 Mar 2016, 18:32

FBM KLCI may test 1,800 level in 2016 — AIA fund manager

By Alex Chong / The Edge Financial Daily | March 1, 2016 : 10:08 AM MYT

This article first appeared in The Edge Financial Daily, on March 1, 2016.

KUALA LUMPUR: The benchmark FBM KLCI may test the 1,800 level this year, as foreign funds are likely to make a comeback to capitalise on the undervalued ringgit and the gradual recovery of oil prices, said AIA Pension and Asset Management Sdn Bhd (APAM) general manager Ng Chze How.

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“As an insurance asset management arm, we generally don’t time the markets. But we think current valuations of the [FBM] KLCI represent an attractive entry point for long-term investors.

“Besides attractive valuations, we also opine that the ringgit is undervalued relative to its fair value of 3.95 per US dollar, based on the real effective exchange rate (REER), and crude oil prices will see a gradual recovery this year,” said Ng, who was briefing reporters on APAM’s achievements in 2015, and outlined key strategies for the fund in 2016.

“[The FBM] KLCI is now trading 1.72 times its book value, relatively close to the trough level of 1.3 times we saw in the 2008 global financial crisis. If you look at historical trends, [the FBM] KLCI rebounded after it experienced significant declines and reached its troughs in the 1997 Asian financial crisis and 2008 global financial crisis,” he said.

“Inflow of foreign funds from 2010 to May 2013 hit a peak of US$16 billion. Since then, some US$12 billion has flowed out of Malaysian equities and foreign shareholding in Bursa Malaysia is now near its record low, at 22%,” he added.

Although the change in foreign investor sentiment may not be immediate, Ng said the trend of foreign fund outflows may reverse and foreign investors may come back, as they now see Malaysia as a “defensive market in these times of volatility” and “a better proxy to improving China’s growth”.

“For foreign investors, currency is a key concern. Following the sharp depreciation of the ringgit, Malaysian equities now look even cheaper to them. Based on the REER fair value of the ringgit, foreign investors could earn an attractive 5% to 8% on the undervalued ringgit, especially so after the ringgit has stabilised in the past couple of months and worries about political stability subsided,” he explained.

Sector-wise, Ng is overweight on property, construction, oil and gas (O&G) and transportation. For property, he prefers the affordable housing segment. As for O&G, he likes companies with long-term and secured counterparties.

Having achieved an outsized 273% growth in assets under management (AUM) vis-à-vis the industry average of 63% in 2015, Ng said APAM is now looking to expand its AUM by RM40 million, an approximate 30% AUM growth of its private retirement scheme (PRS) in 2016.

As of December 2015, APAM ranked as the No 3 PRS provider in the country, managing 11.6% of total AUM in the PRS industry.