KUALA LUMPUR (Sept 8): The Malaysian stock market, which has outperformed its regional peers since the onset of the Covid-19 pandemic, is backed by "real money" from institutional investors rather than speculation, according to Principal Asset Management Bhd.
Its chief executive officer and executive director, Munirah Khairuddin, said although there was a spike in retail participation in the local bourse, institutional funds remain strong anchors in the equity space as they search for better yields in the low interest rate environment.
"Usually the flow is from the stock market into funds. But now we're starting to see flows into funds while individual shares are rallying, so to me that shows real money. Local funds including unit trust funds have been doing quite well in terms of inflows.
"Although foreigners remained net sellers on our stock market, the local money is anchoring it (the market) — not only anchors in the institutional space but this time we also have strong retail anchors. This is the difference," she told a press conference after Principal's 2020 Global Summit here today.
Her views were echoed by Principal Asset chief investment officer Patrick Chang, who said that the FBM KLCI has largely been driven by the healthcare sector, which has seen medical glove manufacturers, in particular, raking in bumper profits amid the Covid-19 pandemic.
Compared with its regional peers, he said the KLCI has been the biggest outperformer in ASEAN year-to-date, having only been down by about 6% compared with Thailand (down 22%), Singapore (down 22%) and Indonesia (down 25%).
These countries, he noted, do not have a massive glove sector like Malaysia does.
"Glove makers are making historic amount of profits as we speak — this tells you at the end of the day that it is backed by fundamentals. Obviously, with this kind of euphoria you will get the small cap index doing better but interestingly enough the shariah index has outperformed the small cap index," he said.
On the KLCI year-end target, Chang said he believes that the benchmark index may hover 5% to 8% lower than the current level in the worst-case scenario as investors are expected to factor in the roll-out of the Covid-19 vaccine.
"Even though there are positive elements like earnings and so forth in the healthcare sector, as you go towards the year end, vaccine is priced in, then people may start to take money off the table and reprice those sectors," he added.
On another note, Munirah expects Bank Negara Malaysia (BNM) to cut the overnight policy rate (OPR) by another 25 basis points by year end, saying that the central bank would remain accommodative to spur market investment and to boost local consumption.
BNM's Monetary Policy Committee is scheduled to meet on Thursday to review the OPR. Year-to-date, the central bank has slashed the key interest rate by a total of 125 basis points to 1.75%, the lowest since the 2008-2009 global financial crisis.