Question marks make investors shy away from KL market

KUALA LUMPUR: Expensive valuations, muted earnings revisions and uncertainty on the private sector’s role in driving the economy have made the local equity market unattractive relative to other regional markets, BNP Paribas Private Bank Hong Kong senior investment strategist for Asia, Andrew F Freris said.

“There is a mixture of good and some areas where investors may still have a question mark. By no means, I am not unhappy by what I’ve seen but in terms of relatives, that’s actually why some investors might prefer other markets.

“These are the reasons that have made Kuala Lumpur one of the worst-performing markets, in relative terms, because it has gone up less than other Asian markets,” Freris told The Edge Financial Daily on the sidelines of RAM Holdings Bhd’s annual bond conference here last week.

The FBM KLCI has gained 44.96% from the start of the year up to last Friday’s close. Singapore’s Straits Times Index has risen 54.82%, Hong Kong’s Hang Seng Index has gained 56.76%, and China’s Shanghai and Shenzhen indices have risen 75.07% and 108.31%, respectively. The Jakarta Composite Index has surged 79.05%.

Nonetheless, Freris said due to the government’s two stimulus packages and the liberalisation of the financial system and capital markets, things here were changing rather quickly.

He also highlighted the government’s initiatives in Iskandar Malaysia, Johor, saying the progress and effects of that project were “major”.

“Malaysia has got a strong , structurally supportive fiscal environment and monetary policy that stay cautious, but I imagine the reason the market is not performing much more strongly is the question mark about how long the government will continue to lead and when the private sector will start taking over,” he added.

Freris

On the outlook of the Malaysian market and economy, he said the FBM KLCI could continue rising until the market saw two consecutive quarters of gross domestic product (GDP) growth, which would then impact earnings and in turn signal an interest rate hike.

He said sectors likely to benefit from the economic recovery included CONSTRUCTION [] and infrastructure, mainly due to the initiatives set out in the government’s RM67 billion fiscal spending packages.

Monetary policy here was likely to remain supportive of growth and the overnight policy rate would not be raised “anytime soon”, he said.

“Second quarter GDP was also better than the first, and we reckon 3Q09 will be pretty supportive,” he added.

Meanwhile, on the performance of global stock markets going forward, he said BNP Paribas was still very cautious, adding while there still may be room for markets to make gains, the G3 markets, especially the American market, remained very “jumpy”.

Hence, the bank also remained cautious about the Asian markets, although it was positive on China and South Korea, he said.

“As a whole, we’re very cautious and conservative. We’re quite boring, really. We’re not telling our clients to dive into equities, but neither are we telling them to stay away,” he said.

He also said the bank was neutral on India, adding the Singapore, Malaysia and Hong Kong markets were not included in its investment universe.

“Equity investment is fairly globalised, equity allocation takes place across and within markets, so it is no surprise if the S&P 500 index in the US goes up, the KL market will also go up.

“As long as there is quite a degree of jumpiness in the US market, because of the uncertainty of the extent and sustainability of a recovery, that will be reflected back in KL,” he added.