Market Outlook
Equity Market Outlook
- Market was quiet for the week of 16 March due to the school holidays. This was reflected by the drop in volume traded.
- Fitch Ratings is currently reviewing Malaysia rating and is due to make a decision in mid-May or early June. Malaysia’s credit rating currently stands at A-. Fitch highlighted the possibility of a ratings downgrade for Malaysia. Some of the possible impact from a ratings downgrade is Ringgit Malaysia (MYR) depreciation and foreign outflows. Foreign outflows will affect stocks that are widely held by foreign investors such as the banking and telecommunication sectors. MYR depreciation will benefit export oriented stocks. Currently our portfolio is well positioned and there should be minimal impact should there be a downgrade by Fitch.
- We still maintain our preference for bottom-up stock-picking strategy for our portfolios.
Fixed Income Outlook
While the threat of sovereign rating downgrade by Fitch Ratings may amplify distinctive weakness of Malaysia and consequently the volatility in foreign flows, we opine that the potential sell down by the foreign investors would be manageable considering the fact that:
- S&P and Moody’s are still standing firm on their ratings for Malaysia;
- Foreign holdings of MYR bonds continued to hold up well i.e. above 45% of Malaysian Government Securities (MGS) outstanding as at end-February 2015 (vs 44.1% as at end-December 2014);
- Policy divergence from quantitative easing measures by European Central Bank, policy accommodative efforts by People’s Bank of China and most recently rate cuts by Bank of Korea and Bank of Thailand are expected to provide some support for MYR govvies from a relative yield advantage vis-à-vis peers;
- Sentiments of benign inflation outlook combined with Overnight Policy Rate (OPR) pause mode lend support for bond dynamics. Year-to-date government bond tenders concluded have demonstrated healthy bid-to-covers ratios well above the psychological 2.0 times; and
- Domestic players may step up with purchase in the event of sell off with support likely from local Government Linked Companies and statutory bodies to prioritise domestic investments and cease acquiring foreign assets.
For the week ended 20 March 2015, the local government bonds rallied, guided by the rally in US on the back of a dovish Federal Open Market Committee statement. Buying interest was seen across the curve by both local and foreign players. Buying interest for short dated bonds continued from last week but some attention shifted to the back end of the curve especially for the 10- and 15-year benchmark MGS. During the week, strong interest with bid-to-cover of 3.433 times was seen in the new 15.5-year benchmark Government Investment Issue (GII) with an issuance size of RM1.5 billion. The secondary Private Debt Securities market saw active trading this week with strong buying interest in the GG/AAA segment such as DanaInfra Nasional Bhd, Bank Pembangunan Malaysia Bhd, Prasarana Malaysia Bhd and Telekom Malaysia Bonds.
DISCLAIMER: This publication shall not be copied, or relied upon by any person for whatever purpose. The information herein is given on a general basis without obligation and is strictly for information only. This publication is not an offer, solicitation, recommendation or advice to buy or sell any investment product, including any collective investment schemes or shares of companies mentioned within. Although every reasonable care has been taken to ensure the accuracy and objectivity of the information contained in this publication, Hong Leong Asset Management Bhd and its employees cannot be held liable for any errors, inaccuracies and/or omissions, howsoever caused, or for any decision or action taken based on views expressed or information in this publication. The information contained in this publication, including any data, projections and underlying assumptions are based upon certain assumptions, management forecasts and analysis of information available as at the date of this document and reflects prevailing conditions and our views as of the date of the document, all of which are accordingly subject to change at any time without notice. Hong Leong Asset Management Bhd does not warrant the accuracy, adequacy, timeliness or completeness of the information herein for any particular purpose, and expressly disclaims liability for any errors, inaccuracies or omissions. Any opinions, projections and other forward-looking statements regarding future events or performance of, including but not limited to, countries, markets or companies are not necessarily indicative of, and may differ from actual events or results. Nothing in this publication constitutes accounting, legal, regulatory, tax or other advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person. You may wish to seek advice from a professional or an independent financial adviser about the issues discussed herein or before investing in any investment products.