This article first appeared in The Edge Financial Daily on May 3, 2019
KUALA LUMPUR: Investors are looking for short-term capital gains rather than long-term investments amid the volatility in the equity market, RHB Investment Bank Bhd said.
“The market will be a trading-oriented market. Investors now tend to look short-term in terms of their investment horizon,” RHB regional equity research head Alexander Chia told reporters after the launch of the RHB Small Cap Book 20 Jewels 2019 edition yesterday.
“There is no such thing as long-term [investments] now,” he said.
Chia added that the stock market remains “fluid” and hence, RHB is also looking for immediate-term returns.
“Our stock market strategy is to buy on weakness, with a bottom-up stock picking approach.
“Our focus will continue to be on small/mid-cap stocks, which offer better growth and have a lower P/E (price-earnings),” he said.
On the FBM KLCI’s performance this year, Chia noted that big-cap stocks have not been doing so well, mainly because there have been very little earnings growth to offer, have expensive valuations and are expose to regulatory risks.
“Earnings growth is almost zero for this year and there are downside risks to earnings in the coming quarters,” he said.
Malaysia’s stock market also remains less attractive from a valuation and earnings growth standpoint compared with other regional markets, he added.
Chia warned that there is a possibility that the stocks under RHB’s coverage would chart negative growth this year.
“But if you strip out the large caps from the overall basket of stocks that RHB covers … the growth and valuation are significantly better,” he said, adding that RHB’s end-2019 FBM KLCI target is 1,682 points.
While the ringgit has been depreciating against the US dollar to as low as 4.1420 two weeks ago, RHB is still keeping its end-2019 USD/MYR forecast of 3.80.
“The current level of ringgit has already factored in the overnight policy rate (OPR) cut,” said Chia. The ringgit closed down 0.08% at 4.138 to the US dollar yesterday.
RHB is anticipating a one-time cut of 25 basis points (bps) in OPR this year to sustain the country’s economic growth.
However, he is uncertain if the potential OPR cut by Bank Negara Malaysia (BNM) will happen during its monetary policy committee’s (MPC) meeting on Tuesday or later this year. At its last MPC meeting in March, BNM said the committee decided to maintain the OPR at 3.25%.
RHB senior economist Vincent Loo Yeong Hong, in an April 25 report, said the group had previously expected BNM to keep the OPR stable at 3.25%, but has seen increasing likelihood of it being cut of late as economic growth seems to be heading closer to the weaker end of BNM’s forecast and due to a rise in the real policy rate amid subdued inflation.
As such, he sees a strong likelihood that BNM could reduce the OPR by 25bps to 3%, probably as early as May.
“We are also of the view that a window for a rate cut may have arose after the US Federal Reserve hinted at a rate pause in its March meeting,” Loo wrote.
Meanwhile, with a projected slower global growth, particularly in the US, Chia sees the possibility of the ringgit strengthening against the US dollar.
“If the US economic growth weakens, there is a possibility of the market beginning to factor in possible rate cuts in the US as we progress into second half of the year, if not this year [then] the first half of 2020,” he said.