Thursday 28 Mar 2024
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KUALA LUMPUR: Aberdeen Islamic Asset Management Sdn Bhd continues to prefer the local equity market to the bond market as it deems the latter “relatively expensive” and “unattractive”.

“In terms of investment, our top picks would be banking, consumer products and oil and gas sector-related companies as they have relatively steady and reasonable valuations,” senior investment manager Adrian Lim Ek Duen (pic) told a media briefing on the company’s 2015 market outlook yesterday.

“Reasonable valuation does not mean it is cheap. Instead, we should look at the foundation of the stock and its valuations for the next three to five years,” he said.

In terms of the attractiveness, Lim said the equity market is relatively more attractive compared with other Asian countries.

“When you look at the global emerging market and the Asia ex-Japan Index, Malaysia is in an overweight position. If you look on a stock by stock basis, I still find Malaysia attractive,” he said.

Aberdeen’s assistant investment manager Edmund Goh Yih Yee, meanwhile, said the local bond market is relatively expensive compared with other countries.

Goh noted that three-year Malaysian Government Bonds and 10-year bonds’ yields currently stand at 3.55% and 3.9% respectively.

“At a yield of 3.9% for the 10-year government bond, an investor is not being compensated enough for credit risk,” he said. “The bond market would be more attractive if the government provided higher yields at 4.2%.”

Aberdeen senior investment manager John Livingstone said investors can also consider investing in European bond markets as Europe’s weak growth is credit positive for it.

“With the bank recapitalisation tests over, there is hope for an increase in lending which should be positive for demand, hence company earnings,” he said.

“However, the potential downside is a lack of structural reform and a rise in populism,” he said.

On the 2015 market outlook, Goh expects economic growth next year may be weaker than the economists’ consensus forecast of 5.2% due to a lack of short-term catalysts.

“Unless the US economy’s growth surprises on the upside, [which] could increase demand for electrical and electronic products. Otherwise, investment growth is likely to be relatively stable,” he said.

Goh also said Bank Negara Malaysia will likely keep its overnight policy rate unchanged at 3.25% until the first half of next year.

“I don’t think [economic] growth will be very strong next year,” he said, due to lower domestic consumption expected in 2015 following petrol price hikes and the upcoming implementation of the goods and services tax.

 

This article first appeared in The Edge Financial Daily, on November 20, 2014.

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