FBM KLCI could climb 5%-10% in 2018, says ‘Warren Buffett of Asia’

This article first appeared in The Edge Financial Daily, on January 24, 2018.

Cheah: I know many people don’t like plantation stocks right now, but from a global perspective, we always have room for that. Photo by Suhaimi Yusuf

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KUALA LUMPUR: Driven by a stronger ringgit, the local benchmark index FBM KLCI is expected to rise as much as 10% this year, according to prominent fund manager Datuk Seri Cheah Cheng Hye, who is known as the Warren Buffett of Asia.

“The Malaysian equity market is one of the markets that show continuity growth. Typically, when the ringgit strengthens, the stock market index will also go up. It is a very simple correlation,” he told reporters on the sidelines of Invest Malaysia 2018 here yesterday.

“As the ringgit is currently strengthening, the FBM KLCI can probably go up by between 5% and 10% this year. It is not difficult,” said Cheah, who is the chairman and co-chief investment officer of Hong Kong-listed Value Partners Group Ltd.

He added that going forward, the ringgit will become more attractive, given the anticipated interest rate hike in Malaysia.

Cheah said unfortunately, the Malaysian stock market is “not cheap”, considering its price-earnings ratio (PER) of about 16.5 times. “It is not cheap enough for me to be excited”.

He noted that although some foreign stock markets have climbed, Singapore and China stocks are still slightly cheaper than Malaysian stocks in terms of PER.

Cheah also sees the FBM KLCI performance further boosted by the election factor.

“Do not forget [2018] is an election year. Typically, Malaysian stocks will go up in the election year. This has been the trend in most elections in the last years. The only election year that the stock market did not go up was in 2008, due to [the] global financial crisis,” he said.

Cheah favours selective plantation stocks, as well as those in the oil and gas (O&G) sector.

He, however, warned investors against investing in property stocks due to the current oversupply of condominiums and shopping malls in the country.

“Currently, in Malaysia, we (Value Partners) only have exposure to plantation stocks. I know many people don’t like plantation stocks right now, but from a global perspective, we always have room for that,” he said.

Cheah highlighted that many O&G companies have become leaner over the years and hence, the recent global oil price recovery should bode well for them.

“[The impact of] Brent, at US$70 (RM275.10) per barrel today, is the same as US$85 per barrel before, because their (O&G firms’) cost has come down for about US$15. I think the rally will continue. I’m actually a little bit excited about O&G sector,” he said.

He pointed out that he appreciates the efforts by Malaysian companies such as Sime Darby Group in enhancing shareholders’ value by undertaking restructuring exercises.

“I’m looking forward to more restructuring efforts as such, from the likes of Malayan Banking Bhd and CIMB Group Holdings Bhd,” he said.

Meanwhile, Cheah said Bursa Malaysia should consider setting up a new board that allows local technology companies to undertake a dual-class-share structure listing. “The promoters and founders of technology companies typically want to retain control, even if they have sold some shares. You must allow that (dual-class shares) to attract them.”