Weekly Market Update - 4 January 2016

Market Outlook

Equity Market Outlook

Summary of 2016 Market Outlook

• Stock selection strategy with overweight in companies with strong fundamentals, low gearing (no USD borrowing exposure) and with decent earnings growth.

• Sectors which we overweight are Manufacturing (exporters), Consumers, Constructions, Pharmaceutical and Education.

• Sectors deemed to be of higher risk (in comparison to the sectors which we are overweight) are Banks, Properties and Telcos.

Recent event

• 1MBD’s disposal of 60% of Bandar Malaysia stakes to IWH and CREC has reduced the borrowings of 1MDB by Rm40.4 bn and helped to reduce the default risk of 1MDB. 

Fixed Income Outlook 

• We think growth in the US is likely to disappoint in 2016. Headline inflation will continue to underwhelm, underpinned by low energy prices and slower global trade activities. As a consequence, we think the treasury yield curve may structurally flatten, where yields of longer maturities stay low and short maturities rise along with the potential rate hikes for 2016.
• On the local front, we think growth will moderate to a certain extent. Inflation should remain robust in 2016 although this may be driven by the higher costs of imports rather than real demand. We expect the monetary policy rate to be mostly stable for the year with the potential for a rate cut should growth slow dramatically. We also expect a supply of higher duration Malaysian Government Securities (MGS) issues this year with an incremental net supply. As a result, the MGS yield curve could steepen where short maturities remain anchored and yields on longer maturities move higher.

Source: Lipper for Investment Management, as at 31 December 2015. Past performance is not necessarily indicative of future performance. 

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.