KUALA LUMPUR (Apr 29): Recent earnings downgrades in Southeast Asia that saw Malaysia and Thailand witnessing the biggest downgrades last year, have kept investors on their toes about equity investment in the region.

Manulife Asset Management (Hong Kong) Ltd head of Asia Pacific equities, Linda M Csellak, said although there are very good investing opportunities in Southeast Asia in terms of earnings performance of small- and mid-cap companies, there seems to be more upgrades by analysts in North Asian companies than in Southeast Asian companies.

“Although Southeast Asian companies present good investing opportunities, we tend to find [that] there have been a lot of earnings downgrades by analysts on companies in this region. In North Asia such as in South Korea, Hong Kong and in India, there are more upgrades,” she told reporters at a briefing on the fund today.

Data over the last 12 months sourced from Asian brokerage and investment group CLSA Ltd showed Malaysia recorded an approximate negative 12% earnings revision, while Thailand showed an almost negative 16% earnings revision.

“When analysts downgrade earnings for companies in a region, there seems to be a leg down in those regions and we find that we have to be careful when investing in those companies,” said Csellak.

Nevertheless, Csellak said that does not mean Manulife will shrink its investments in Malaysian equities, which at Feb 27, 2015 encompassed 2.55% of the Manulife Global Fund-Asian Small Cap Equity fund.

“We don’t have a lot of exposure to Malaysia right now. But we will not rule out opportunities to enhance our Malaysian investments here. In terms of stocks on Bursa Malaysia that we do look at, the primary sector in which we have exposure to, is the technology sector, and this applies throughout the Asian markets,” said Csellak.

The bulk of the fund’s investments however, are in North Asia, mainly in South Korea (21.22%), Hong Kong (18.58%) and India (15.96%).

Manulife Asset Management Services Bhd, a wholly-owned subsidiary of Manulife Holdings Bhd, has launched the Manulife Asian Small Cap Equity Fund on April 8, 2015. It is a feeder fund that invests in a target fund, which is the Manulife Global Fund-Asian Small Cap Equity Fund.

The feeder fund gives Malaysian investors access to among over 14,000 companies listed on exchanges across the Asia Pacific region, of which the vast majority are small or mid cap, and that have a market capitalisation of US$3 billion or less.

“We prefer companies with improving return on equity, free cash flow and earnings sustainability. We also like companies that have some sort of leadership position in their industries and a strong competitive advantage. Pricing and mispricing is key, as we are looking for undervalued stocks,” said Csellak.

The fund is targeting sophisticated investors, or in other words, investors with a personal net asset value exceeding RM3 million who are willing to accept high risk to achieve long-term capital growth, said Manulife Asset Management chief executive officer Wong Boon Choy.

The minimum initial investment for the fund is RM10,000; the minimum additional investment is at RM1,000. From its inception in 2006, the target fund has achieved cumulative returns of 154.67%. Its total assets under management as at March 2015 stood at US$443.3 million.

Malaysia is the sixth market that the investment strategy has been introduced to. It was previously launched in Hong Kong, Singapore, Taiwan, Japan and Thailand.

“We remain positive on small cap markets in the region, as investors expect the US to show continued growth in 2015. With Asian growth gradually accelerating, the economic environment should be supportive of the performance of Asian small cap equities,” added Csellak.

Manulife Holdings (fundamental:0.3; valuation:2.1)’s counter closed up 2 sen today at RM3.05, for a market capitalisation of RM617.23 million.     

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations).