This article first appeared in The Edge Financial Daily on July 6, 2018

KUALA LUMPUR: The Malaysian stock market has seen foreign net selling almost on a daily basis since the 14th general election that led to a change of government for the first time in Malaysia’s history, but Rakuten Trade Sdn Bhd is expecting a potential return of foreign funds by the fourth quarter of 2018 (4Q18).

Kenny Yee, head of research at Rakuten Trade, shared his optimism about a turnaround for Malaysian equities in the second half of the year (2H18) as many listed companies are now trading at attractive levels.

He told the media during the fully online broker’s market outlook briefing for 2H18 yesterday that the benchmark FBM KLCI is expected to touch 1,895 points by year end. The target is based on 16.5 times the market’s forecast earnings.

Based on the FBM KLCI targets by various research outfits, Yee said the forecast for the benchmark index ranged from 1,767 to 1,920, which indicates their positive view compared to the index’s current level.

“Corporate earnings growth is expected to continue with 2018 growth forecast at around 6.8% compared with about 7.5% last year. Next year, we expect a better performance for Malaysia with an about 8.3% growth,” Yee said, adding that despite the decline seen recently in the ringgit against the US dollar, it has outperformed most of the regional currencies.

Yee also said the volatility in the market is one of the causes of the selldown but he expects foreign funds to return as Asia continues to be the engine of growth for the world economy.

Amid the uncertainties, Malaysia, which has a lower average market volatility compared with its peers such as Singapore, the Philippines, Vietnam, Thailand and Indonesia, could be deemed as the region’s safe haven and is likely to attract interest of foreign investors.

The domestic market, which has a large participation from local institutions such as the Employees Provident Fund, Permodalan Nasional Bhd, Kumpulan Wang Persaraan (Diperbadankan), Lembaga Tabung Haji and others, could help support the market.

“Malaysia, a perennial safe haven, should be a top destination for many foreign funds when they eye a return,” he added.

Among the KLCI component stocks, Rakuten Trade’s top picks are Malayan Banking Bhd (Maybank), Genting Bhd, Kuala Lumpur Kepong Bhd (KLK) and Telekom Malaysia Bhd (TM).

According to Yee, index-linked blue chips are ripe for the picking following some of the heaviest selldown seen in May and June.

“As I said earlier, go for index-linked counters and among the 30 index-linked counters, these are the top four that we have,” Yee said.

Yee explained that Maybank, Genting, KLK and TM are among some of the blue chip counters that are trading near or below 2 standard deviation of the companies’ average share prices.

In the small cap space, Rakuten Trade favours Econpile Holdings Bhd, GFM Services Bhd, Kelington Group Bhd, Mi Equipment Holdings Bhd and Straits Inter Logistics Bhd.