Monday, 30 March 2015
PETALING JAYA: Despite the sliding ringgit, declining commodity prices, dismal corporate earnings and the prospect of rising interest rates in the United States, stocks on Bursa Malaysia are holding up quite well.
The first quarter, which is almost over, was not too bad for local investors. The FTSE Bursa Malaysia KL Composite Index (FBM KLCI) is up 3% year-to-date at 1,813.37 points as of last Friday. This had kept the benchmark index just 4% shy of its all-time high of 1,892.65 points reached in July last year.
But for overseas investors, the index’s absolute gain was wiped out by the ringgit’s 5% depreciation over the past three months. Measured in US dollar return, the FBM KLCI is down 1.9% year-to-date.
Figures compiled by MIDF Research showed that foreign investors had dumped about RM4bil worth of local stocks since the start of January. The recent sell-off was on top of the RM6.9bil worth of foreign money that left the market in 2014.
Overseas investors in Indonesia are slightly better off. The Jakarta Composite Index is up 3.2% year-to-date, but the rupiah’s 5.2% decline against the US dollar over the same period means overseas portfolio managers are staring at a 1.8% paper loss on their investment.
At current price level, the FBM KLCI is valued at 17 times projected earnings.
This puts the local market’s valuation at one of the lowest in the region. In contrast, stocks in Thailand are trading at 19 times earnings, while in Indonesia, they are worth 22 times earnings.
Stocks in Singapore are the cheapest at 14 times earnings, but in South Korea the valuation had gone up to 25 times after a recent 5.5% rally. The wide discount may help lure foreign investors back into the local market. But some analysts said stocks on Bursa Malaysia were cheap for a reason, as they carrird more risk.
The local stock market has been lagging its regional counterparts on weak corporate earnings growth. Analysts, including those at CIMB Research, said earnings for the top 30 companies in the FBM KLCI basket would expand at around 6% this year before picking up some speed in 2016.
But there is a growing downside risk, due to the rise of the US dollar and weaker commodity prices. Oil and gas companies, as well as plantation stocks, make up a significant chunk of the FBM KLCI.
One company that is benefiting from the falling fuel prices is Tenaga Nasional Bhd.
The power utility is up 2.9% at RM14.20 year-to-date. It is now the second largest stock on Bursa Malaysia with a market value of RM80bil, behind Malayan Banking Bhd.
TNB is benefiting from cheaper fuel prices, which lower the cost of generating electricity. However, a weaker ringgit, which had fallen 5% over the past three months is driving up the cost of servicing its foreign debts.
The appetite for TNB shares remained high despite a Government cap of electricity tariff hike for the rest of the year. A sale of 112 million TNB shares by its biggest shareholder Khazanah Nasional Bhd in January was quickly taken up by a mix of local and foreign buyers.
TNB is one of the few stocks that continue to attract strong overseas interest. An estimated 26% of the company’s shares are held by foreign investors.
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