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This article first appeared in The Edge Financial Daily, on December 31, 2015.

 

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KUALA LUMPUR: UOB Asset Management sees the FBM KLCI’s positive momentum to be sustained until Chinese New Year (CNY), as foreign funds look to return to the local market while the ringgit remains cheap.

The fund house sees plantation and construction as two potential sectors that are attractive for foreign funds and ValueCap Sdn Bhd next year, due to the stabilisation of palm oil prices and robust infrastructure projects in the new year.

The fund house’s executive director and chief executive officer Lim Suet Ling told The Edge Financial Daily over the phone that as the US Federal Reserve had started to raise interest rates, foreigners are looking for opportunities to return to the local bourse since the ringgit has dropped significantly.

Yesterday, the FBM KLCI closed 7.78 point or 0.462% higher at 1,693.14 points, underpinned by plantation and banking blue chips.

The FBM KLCI started to reverse its earlier losses since Dec 22, when “window-dressing” activities picked up. The index shot up 64.05 points in just four trading days, from the closing level of 1,629.09 points on Dec 21.

The index closed at 1,761 points on Dec 31, 2014. Thus, it is widely expected that the FBM KLCI this year will be in the red, compared to last year.

Year to date (YTD), the local currency remains in negative territory against the US dollar, having fallen close to 22.7% to 4.29.

Lim said the index rebound was due to foreign and local funds allocating funds back to Malaysia, and investors adjusting portfolios.

“The positive sentiment on the [FBM] KLCI could possibly be sustained until Chinese New Year, because it is just one month towards Chinese New Year, and traditionally, we do have [a] rally towards Chinese New Year,” Lim said.

Lim also opined that foreigners are rather “light” on Malaysia, and after a sell-off, foreign funds are looking to reposition back to neutral levels.

According to Bursa Malaysia, foreign shareholding in the local market as at end-November stood at 21.6%. Foreign shareholding in December 2014 was 23.5%.

Meanwhile, based on her calculation, if ValueCap’s fund accounts for 5% of daily trading value, which is about RM2 billion, with RM20 billions of total funds, the fund should be able to last around nine to 10 months going forward.

“Five per cent of RM2 billion ... it is about RM100 million, so if RM6 billion is coming into [the] market, with RM100 million, it can last 60 days or 12 weeks,” she explained.

“Assuming ValueCap has the fund ready, the fund still has its mandate to deliver returns to its shareholders. In this case, the fund will look for values in the market,” she emphasised.

“However, it is a stock selection market. We don’t really look index-wise, but for individual stocks, since [the FBM] KLCI will still be negative YTD,” she said.

According to Lim, funds may also be interested in plantation-related companies as crude palm oil (CPO) prices seem to have stabilised at RM2,200 to RM2,300 per tonne, and the El Nino dry weather may lead to higher CPO prices, and eventually enhancing planters’ bottom lines.

Based on Bursa’s statistics, CPO futures for March 2016 rose RM11 to RM2,495 per tonne.

Her top picks in the plantation sector are Ta Ann Holdings Bhd, Genting Plantations Bhd and IOI Corp Bhd.

She also concurred with other fund managers and analysts that the construction sector will be a key focus next year.

YTD, domestic contract awards to listed contractors have been robust at RM21 billion, the second-highest sum posted in the past eight years. With the impending rollout of MRT2 and LRT3, it has been widely said that 2016 could set a new record for job wins for contractors.

Lim likes Sunway Construction Group Bhd, Muhibbah Engineering (M) Bhd and Gamuda Bhd in the sector.

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