Affin Hwang AM cautions investors against 'chasing the market' amid market rally

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KUALA LUMPUR (April 20): Affin Hwang Asset Management Bhd (Affin Hwang AM) has warned investors against falling into the trap of "chasing the market" following a strong and solid performance of the stock market in the first quarter this year.

"It's something that I believe very strongly. We have seen it time and time again; when people chase the latest trend or stocks, more often than not, it ends up in tears. It's almost like a mantra for us as a fund house. We want to advocate asset allocation," its chief investment officer David Ng told reporters at the company's Market Outlook presentation today.

He noted that the FBM Small Cap index is Asia's and emerging market's top performer year-to-date with an increase of 19%, while the benchmark FBM KLCI index has gained by 6.2%.

However, he shared that the market is likely to enter into a consolidation period moving forward as it digests the earnings prospects and how it has fared.

"The more risk you took in the first quarter, the better the returns. As we move into this quarter (2Q17), you just have to be judicious and selective (in stock picking)," Ng said.

He also pointed to some of the key events in the upcoming months including US President Donald Trump's first 100 days in office, French presidential election in May, the UK's snap election in June and German parliamentary election in September. The market confidence on Trump's ability to pass some of the pro-growth reforms seems to be diminishing.

Some of the risks include the risk posed by Trump's protectionism, as well as a potential US-China trade.

However, Ng said recent developments have seen these risks mellowed down, following the US's decision not to label China as a currency manipulator.

With the expectation that the stock market's rally will tone down, Ng said Affin Hwang AM has increased its allocation in cash. Currently, the cash allocation in some of its equity funds stands at about 10% to 15%. In comparison, most equity funds allocate up to 5% in cash only.

Nevertheless, Ng said it is not unusual for the fund house to do so, given its prudent and disciplined investment style.

Some of the key themes that Ng sees this year include reflation, which is beneficial to the banking, insurance, industrial and commodity sectors.

He also expects Asia's domestic-driven economy to benefit some domestic driven sectors such as consumer goods and tourism. Similarly, with the infrastructure spending in the region, the construction and infrastructure sectors stand to benefit from it.