KUALA LUMPUR: Selling on Malaysian equities by foreign investors is mainly done with, with the country remaining very much on the radar of investors, according to Maybank IB Research.

In a strategy note yesterday, the researh house said its take was that most of the funds it met had reasonably reduced their exposure to Malaysian equities since the roil on crude oil price began.

“They are presently either ‘underweight’ or ‘neutral’ on Malaysia,” it said.

This is to be expected since investors generally do not like uncertainties, it said, adding that Malaysia’s net oil-exporting status weakened the investment case.

It said investors’ reduced exposure was evident from the weak ringgit, down 13% versus the US dollar from a high of 3.146 on Aug 27, 2014.

The research house said Bursa Malaysia’s fund flow data showed that foreign investors had net sold RM2.4 billion of Malaysian equities since early this year until Jan 22, adding on to a net sale of RM6.9 billion in 2014.

“In the last few trading days, foreign investors have, however, turned net buyers.

“Foreigners’ position is still of a net buy of RM7.1 billion since 2012, and RM24.9 billion since 2010,” it said.

Maybank IB said Prime Minister Datuk Seri Najib Razak’s announcement on Jan 20 on the government’s revenue enhancement and measures to cut operating expenditure to support a revised 3.2% fiscal deficit target for 2015 (versus 3% previously), and a lower 4.5% to 5.5% real gross domestic product growth forecast for 2015 (5% to 6% previously), was positive on sentiment as it shows attentiveness in dealing with the issues at hand.

“The prevailing concern, however, is of low crude oil price sustaining over an extended period, and thus, the impact on the fiscal deficit beyond 2015.

“In addition, near-term headwinds include the 6% GST (goods and services tax) implementation come April 1, 2015 and rating agencies’ review of Malaysia’s sovereign debt rating by mid-2015,” it said.

Maybank IB said it continues to expect the volatility in FX (foreign exchange), bonds and equities to stay high in first quarter of 2015 (1Q15), and cautiousness to prevail in 2Q15 due to the GST implementation.

It said the 11th Malaysia Plan (2016-2020), to be unveiled in May, is critical in addressing rating agencies’ concerns over Malaysia’s “dependence on commodities” and it should offer insight into fiscal consolidation efforts in balancing a high-income economy target.

The research house also continued to advocate a defensive strategy for equities. It said telco and power stocks like Tenaga Nasional Bhd (TNB) (fundamental: 1.3; valuation: 1.8) offer less earnings downside risks.

“With all telco stocks being syariah-compliant, sector valuations should at least sustain. TNB is also syariah-compliant, trading at a lower PER [price-earnings ratio].

“The glove and port sectors also offer earnings defensiveness,” it said.

Maybank IB said that as for dividends, Axiata Group Bhd (fundamental: 0.85; valuation: 0.9), Telekom Malaysia Bhd  (fundamental: 1.1; valuation: 0.9) and TNB had the capabilities to pay more, for  Khazanah Nasional Bhd to distribute up to the government, as the government expects to realise additional dividends of RM400 million from government-linked companies and government-linked funds , as well as other government entities.

The research house said thematics in 2015 include: (i) 11th Malaysia Plan (Gamuda Bhd [fundamental: 2.2, valuation: 1.5]); (ii) further strengthening of the US dollar and weakening of the yen (Inari Amertron Bhd [fundamental: 2.3; valuation: 1.5] and Vitrox Corp Bhd [fundamental: 3; valuation: 1.5)], glove producers, Berjaya Auto Bhd [fundamental: 2.35; valuation: 0.9]); (iii) continued weakness in commodity prices (TNB); (iv) positioning for Sarawak elections (Cahya Mata Sarawak Bhd [fundamental: 3; valuation: 1.5] and Hock Seng Lee Bhd [fundamental: 3; valuation 0.6]); and (v) mergers and acquisitions which unlock values (S P Setia Bhd [fundamental: 1.4; valuation: 1.2], WCT Bhd [fundamental: 0.8; valuation: 1.8], NCB Holdings Bhd [fundamental: 1; valuation: 1.8] and Sime Darby Bhd [fundamental: 1.3, valuation: 1.3]).

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. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Financial Daily, on January 30, 2015.