13 Nov 2018
Building Another Fortress
A common trait among growth funds is that they tend to offer higher potential capital appreciation with the trade-off of above-average risk. With this in mind, the hallmark of a profitable growth fund is the ability to generate superior risk-adjusted returns in a consistent manner. Such qualities are embedded in Kenanga Growth Fund Series 2 (KGFS2), which was rolled out in this year to replicate the success of the fund manager`s flagship Kenanga Growth Fund (KGF), floated 18 years ago with the aim of providing long-term capital growth by investing principally in Malaysian equities.
Budget 2019 themed `A Resurgent Malaysia, A Dynamic Economy, A Prosperous Society` was tabled by the Finance Minister on 2 November 2018 and generally it is within expectations. In fact, we were expecting a broadly punitive budget as both the Prime Minister and Finance Minister alluded a budget with more taxes and `..expect some pain and even offer some sacrifice` during the Malaysia: A New Dawn Investors’ Conference, a month ago.
25 Sep 2018
Risks from Plunging Currencies
The sudden rebound in USD since April this year has placed tremendous pressure on currencies from the emerging nations especially for countries with significant twin deficits i.e. in current account deficits and a simultaneous fiscal deficit. More so if they have low foreign exchange reserves, high external debts and high foreign holdings in their local equity as well as debt markets. Argentine peso and Turkish lira have plunged 50% and 41%, respectively since end of 2017. Closer to home, Indonesian rupiah has also so far fell by 9% this year forcing its central bank to raise interest rates four times to counter the retreat in the currency. While the pressure of strong USD and depressed local currencies have dampened domestic sentiment, the fear in ASEAN has not escalated to an alarming level yet as the banking systems are much stronger now and the countries have much lower external debts having learned from the Asian Financial Crisis in 1980s.
16 Aug 2018
Turkey Crisis: Mid-summer time Dondurma
Within a week, Turkish Lira (TRY) suffered a sharp depreciation by about 25%, spooked the financials market. Weakened Turkey’s economy as the country has been persistently running at twin deficit, coupled with Turkey authoritarian president, Recep Tayyip Erdogan seizing greater control over the country’s economic policy intensified investor`s concern causing investors to pull money out of the country. He made series of pronouncements that undercut the independence of the country`s central bank, railing against increasing interest rates despite Turkey currently dealing with high inflation that is running at annual rate close to 16%.
14 Aug 2018
Khazanah – Gains More than Losses
Under the stewardship of Tan Sri Azman Mokhtar, Khazanah has been well regarded as a better managed Government Link Corporation (GLC). But recent disclosures of several failed investments seem to uncover some of the shortcomings of this well-regarded sovereign wealth fund. Firstly, was the RM80m loss on a lingerie deal, then there was another RM1.7bn loss on global bank UBS in 2008. However, it is worth noting that there are always risks involved in any sort of investments. Hence, naturally Khazanah will encounter some losses in its numerous investment ventures over the past 10-15 years. We cannot deny the fact that Khazanah did have some successful calls and its most notable success story is over RM6bn gain made from investment in Alibaba. According to Azman, its net fund size trebled from RM33.3bn in May 2004 to RM115.6bn as of end-2017 which translates into 9.6% compounded growth per annum.
24 Jul 2018
Value Surfacing in Emerging Markets
After the selloff in emerging markets since the beginning of this year, amidst global trade war initiated by US President Ronald Trump and rising USD, value has started to surface. Several fund managers and strategists believe that the emerging markets are poised to rally again. They cited several reasons behind their bullish calls on the emerging markets ranging from the relative valuations between emerging markets and developed markets, substantial upside after a major sell down, undervalued currencies to impending correction of the USD after its recent recovery. No one can ascertain when the market will hit its rock bottom and the uncertainty of the scale of the US-China trade war can still be a major investment risk. Nonetheless, the risk/reward trade-off for investing in emerging markets has started to become interesting again.
Pakatan Harapan (PH) has emerged victorious in the 14th General Election by a simple majority. This is unprecedented as the previous government, Barisan Nasional (BN) had ruled Malaysia for six decades. With the equity market having priced in a BN victory and learning from our experiences in GE12 and GE13, we expect an immediate negative kneejerk reaction when the market reopens on Monday. In this write-up, we shall explore the implications of the election results on the market, selected sectors and companies under our coverage.
08 May 2018
Big and Small Cap Stock Deviation
The FBMKLCI has done well so far this year. After crossing the 1,800-mark, the 30-stock big-cap index gained 4% for the first four months of this year. The inflow of foreign funds that have purchased RM3.7bn worth of Malaysian shares was one of the main drivers of the FBMKLCI performance. The Finance Index too has fared well by gaining 8.9% from Jan-Apr 2018. However, both the mid- and small-cap stocks do not share the same fate as their big counterparts. After a strong performance last year, most of the mid- and small-cap stocks have fallen in price. The FBM Small Cap Index surged 38.1% in 2017 but plunged as much as 20% for the first four months of this year. In fact, the bullish sentiment as reflected in the firm performance of the KLCI failed to spill over to the broad market and this deviation has happened in the past.
We mentioned in our previous article that US is scheduled to release more details of its announced plan to hike tariffs after the Section 301 investigation into China’s alleged intellectual property abuses no later than 6 April. (https://www.eunittrust.com.my/pdf/research/TradeWarII.pdf) Yesterday (4th April 2018), Office of the US Trade Representative (USTR) released the list of goods from China that would be subject to a 25% tariff as a result of the Section 301 investigation(https://ustr.gov/sites/default/files/files/Press/Releases/301FRN.pdf). The list totals roughly $50bn in goods imports. Importantly, there will be a comment and review period before the tariffs would go into effect. The list could eventually be changed and/or reduced. In immediate response, China released its own proposed tariffs on US exports including soybeans, autos and chemicals. Chinese officials have said that their response is proportional, i.e., a 25% tariff rate on Chinese imports of products from the US that are worth roughly $50bn. Similar to the US announcement, these tariffs will not go into effect and had no set implementation date.
03 Apr 2018
Trade War Episode II: The Chicken Game
China announced new tariffs on the importation of 128 products from the US, effective 2 April 2018 (Table 1). This was in response to the US`s tariff hike on imported steel and aluminium in March. China`s action is a carefully drafted bargaining tactic and we believe it has no intention to escalate trade tensions because other than steel and aluminium, the rest of targeted products all fall into the agricultural products category (which accounted for 4.5% of US exports to China in 2017). Moreover, the agricultural products affected are quite limited (fruits, nuts, pork, ginseng and wine). Soybeans and aquatic products – the two largest agricultural product exports – were not included. In addition, only eight products (seven types of pork and aluminium waste and scrap) are subject to the larger 25% tariff, with 120 products subject to the lower 15%. Overall, around USD3bn worth of US exports, as stated by the Ministry Of Commerce, will be affected; this is merely about 2.3% of total US exports to China in 2017.