KUALA LUMPUR (March 13): The local equity market is presently in a period of consolidation and is anticipated to continue at least till the end of the second quarter this year (2Q19), according to UOB Asset Management (M) Bhd.
Speaking to reporters at a media briefing of the launch of its first Shariah-compliant global balanced fund — United-i Global Balanced Fund (U-iGBF) — here today, its chief executive officer Lim Suet Ling elaborated that the FBM KLCI's valuation is not "extremely cheap" at about 15 to 16 times, which is its historical mean valuation.
"The valuation for the index is fair, given with all the noises at the background. So, more clarity is needed before we move out from the consolidation phase," said Lim.
She noted that the index is expected to stay between 1,650 and 1,750 points this year.
"The longer the index is (in) consolidation phase, the better it is," said Lim, adding that this will allow the FBM KLCI to pick up when earnings are back up and also when the economy is less hostile.
While sentiment has been weak lately, Lim sees it to improve for the full year of 2019.
Coupled with external headwinds such as the Sino-US trade dispute, other risks include the upcoming Asian elections, China growth, as well as auto tariffs seen in the Europe, said Lim
Internally, Lim believes that Malaysia is still in a transition phase.
"The new government has come in almost one year, and they are cleaning up our fiscal position," said Lim, adding the government's move to renegotiate the prices of the mega infrastructure projects is good for the economy in the medium term.
Lim also highlighted that the equity market remains the most attractive asset class with an emphasis on income strategy, whereby companies provide good dividend.
Breaking down into sectors, she highlighted the consumer, automotive and manufacturing sectors to have a little bit more bargaining power than other sectors.
Additionally, with the launch of the U-iGBF here today, UOB Islamic Asset Management Sdn Bhd chief executive director Suhazi Reza Selamat said the fund seeks to help Malaysian investors achieve stable income with lower volatility by investing in a diversified global portfolio of Shariah-compliant asset classes.
He noted that the U-iGBF applies Shariah filters to selected Shariah-compliant global equities and Sukuk to generate income and capital appreciation, adding that the fund is suitable for investors with a moderate risk appetite and a medium- to long-term investment horizon.
Suhazi added that the U-iGBF aims to reduce investment volatility through Shariah screening which filters out non-Shariah sectors such as gambling, weapons and tobacco companies as well as those companies that are overleveraged or have unproductive cash piles.
"This ensures that only companies with low debt ratios and strong fundamentals are included for selection, providing investors with potentially lower investment risk and competitive returns," said Suhazi.