KUALA LUMPUR (Aug 13): Investors looking for opportunities in Malaysian blue-chip stocks may still find upside potential, as the current rebound on the FBM KLCI from the trough in March has left out many of its constituents.

Excluding the two glove makers Top Glove Corp Bhd and Hartalega Holdings Bhd, whose share prices have shot up for five months, the benchmark index is still down over 13% year-to-date, according to Eastsprings Investments' chief investment officer Yvonne Tan.

However, she noted that the upside potential among the KLCI component stocks hinges on the state of the Malaysian economy. Investors will see a clearer picture of the impact of Covid-19 and the ensuing lockdowns on the domestic economy from the gross domestic product (GDP) figure for the second quarter of 2020 (2Q20) that will be released tomorrow.

"If you look at the KLCI, only two sectors have recorded positive returns year-to-date — healthcare has actually gone up by over 200%, and technology which has risen 36%.

"The rally distorted the index and the overall valuation, which actually went up [to 20 times PE versus KLCI's long-term average of 19 times PE]," Tan commented during the Refinitiv virtual conference on Malaysia's investment climate.

"The other sectors in the index have actually declined by double-digits, for example the financial sector has lost 12% and the property sector over 30%."

Commenting on 2Q20 GDP figures, Tan noted the possibility of contraction of the domestic economy to be at double-digit high-teen level given the job loss at the peak of the pandemic in the country.

JP Morgan Asset Management head of Southeast Asia funds and institutional, Supreet Bhan, likened the rebound in the equity market as "the rising tide lifting all boats".

"What that means is that if you are investing today, you have the challenge of recognising that there are no screaming bargains out there.

"There are bargains, but there are reasons why they are bargains," Supreet said.

"Of course, the business environment is still not out of the woods, but there are businesses that are going to come out [from the downturn] a little stronger.

"Some obvious winners tend to be in space like healthcare and transformational technology like cloud-based and e-commerce business — whatever addresses change in consumer and corporate behaviours.

"Because let's face it, the upside-down world we are in today is leading towards those kinds of consumers and corporate behaviours as well," he added.