PETALING JAYA: Malaysia’s uneven recovery due to the movement control order (MCO) implemented at the start of 2021 has now passed, said UOB Asset Management (Malaysia).
For the next couple of quarters, its chief investment officer Francis Eng projected that the country would see an improvement as it benefits from a general improvement in commodity prices.
“Palm oil prices are above RM4,000 per tonne and oil prices have also recovered which should help the government and the country’s finances,” he told the media during UOB’s “Global Markets Update for 2021” virtual briefing yesterday.
In terms of asset classes, Eng stated a preference for equities given that the economy is at the initial stages of recovery and in such a situation, equities are expected to fare better compared with fixed income.
Simultaneously, he noted that the market is seeing some rise in interest rates as well as long-term bond yields, and going by historical trends the equity market is better able to absorb such rise in interest rates.
“As long as it is moderate, we think the equity market is better able to absorb it.”
Nonetheless, he conceded that with a rise in the US 10-year treasury yield, things are starting to look interesting for fixed income investors given the better yield compared with three to four months ago.
Moving forward, the chief investment officer advocated a barbell approach for equities, striking a balance between value stocks involved in reopening plays with stocks in the growth sector.
In the last couple of quarters, he elaborated, the market swung between the two.
“We think it is difficult to time it, so it is better to have both and take companies that they think are best in class to benefit from either value or growth.”
Eng said the asset management firm is quite positive on some of the value and reopening plays.
“We think that markets typically react ahead, we are anticipating a recovery and we have already positioned ourselves for a recovery.”
In addition, the pace of Covid-19 vaccination is expected to support the country’s recovery, and he expects after a slow start Malaysia’s vaccination effort gathers speed in the next couple of months.
UOB listed that among the value sector that would fare better with the economic reopening are financials, property and real estate – particularly mall owners as the public have started going out and resume some semblance of normalcy, as well as the consumer sector in general as consumption is expected to be fairly strong.
Asked about his projection for the end-2021 FBM KLCI, Eng said believes the index will close the year 5% higher than its current standing. This translates to 1,686.46 points based on the index’s opening price of 1,606.15 points yesterday.
However, he stressed that investors should not be too fixated at index target levels as they should aim to outperform the market.
“That is the more important thing, whether the market moves up or down what we want to do is better than what the market is doing.”
