UOB Asset Management (Malaysia) Berhad (UOBAM (Malaysia)) remains confident of Asia’s long-term potential for attractive earnings growth and yields despite some near-term challenges arising from mounting global political risks, volatile commodity prices and global growth concerns. Ms Lim Suet Ling, Chief Executive Officer at UOBAM (Malaysia), explains the rationale behind this view.ww
Q: UOBAM (Malaysia) is a strong proponent of Asia’s investment potential. What is driving this conviction?
A: When assessing Asia’s investment potential, it should always be viewed through a long-term lens. In the near-term, the outlook in Asia remains challenging due partly to the issues in China, which has been facing a conundrum of rising debt and slower economic growth. In addition, there have been only marginal improvements in the Purchasing Managers Index (PMI), new housing projects and foreign exchange reserves.
Despite these challenges, we believe that Asian markets continue to look attractive given Asia’s potential, favourable demographics and rising income, and these structural trends should deliver investment opportunities for astute investors in the long-term.
To add to its appeal, Asian equity valuations are attractive and Asian bonds have presented some good occasions to lock in favourable yields over the long term. To meet investment objectives amid the current economic climate, it is crucial to be discerning in terms of fundamentals, sector, geography and stock selection.
Q: What sectors or countries provide the strongest investment opportunities in your opinion?
A: UOBAM (Malaysia) remains positive on the longer-term outlook for the consumer and technology sectors. Both these sectors benefit from exposure to strong domestic demand and e-commerce growth in the emerging economies.
We also see opportunities within niche segments across high-growth industries. Rising internet and smartphone penetration is expected to accelerate technological disruption across various sectors including retail, financial services, travel and transportation. This trend presents rich bottom-up stock picking opportunities where UOBAM (Malaysia) has the opportunity to invest into high-growth companies with strong financial fundamentals.
In addition, we like the infrastructure sector, particularly in member countries of the Association of Southeast Asian Nations (ASEAN). The under-development in infrastructure in ASEAN countries presents investment opportunities. The United Nations Conference on Trade and Development estimates that ASEAN would need at least US$110billion in annual investment to fund power, transport, telecommunication, water and sanitation projects through to 2025. Infrastructure development will have a longer-term positive impact on the rest of the economy, helping to improve productivity and connectivity, thereby allowing economic growth to accelerate.
Q: How do you expect Malaysia’s financial markets to perform in the closing months of 2016?
A: We believe that prospects for the domestic bourse are better in 2016 compared with 2015. This is because some factors that were a drag on the market last year, namely the weak Ringgit, low oil prices, muted consumer sentiment, uncertainty in China and foreign portfolio outflows, are showing signs of improvement.
Our forecast is for Malaysia’s GDP growth to pick up in the second half of the year. Our view is underpinned by rising consumer sentiment and infrastructure spending. We also expect Malaysia, a major oil-exporting country, to benefit from higher oil prices following expectations for more balanced supply and demand levels over the next 12 months. Further, Malaysia could see positive impact from foreign portfolios looking for a laggard play.
The recent strengthening of the Ringgit and stabilising oil prices are also expected to positively influence Malaysia’s domestic bond market. The continued monetary stimulus by global central banks could provide further support to local bond yields. However, a potential interest rate hike by the United States Federal Reserve may pose a headwind in the near-term.
Q: How do you identify investment opportunities in a volatile or downtrend market?
A: In an environment of subdued growth, investors have to work harder to uncover opportunities. At UOBAM (Malaysia), we help investors meet their mid-to long-term investment objectives through our disciplined investment approach. Through bottom-up analysis, we identify undervalued stocks with the potential to deliver capital appreciation and/or attractive dividend yield. We adopt a stringent evaluation approach to select companies that have a robust and sustainable business model, strong management, and attractive valuations. By focusing on a company’s financial fundamentals, we seek to help our clients achieve their investment objectives, regardless of market direction.
Q: How can investors achieve higher growth and regular income from their portfolio?
A: Investors can benefit from both income and growth when they invest in a fund or portfolio that provides exposure to both equities and fixed income. The fixed income mix in the portfolio provides a regular income stream, while the equity portion focuses on stocks that provide yields for capital appreciation. One such fund is the United Bond and Equity Strategy Trust Fund, a balanced fund which invests inequities and equity-related securities such as warrants, fixed income securities and money market instruments. As at 31July 2016, the fund returned a yield of 10.47 per cent and provided income distribution of 2.20sen per unit.
Q: With global bond yields at record lows, where do you see value across the bond markets?
A: For the long term, we like emerging market (EM) bonds and our bond strategy for 2016 has been ‘to buy the fear’. This means going against market sentiment and buying at lower prices when everyone is selling.
Over the last decade, we have seen EM bonds recover stronger than ever through different economic and financial crises. The asset class has matured and markets are also better managed with economic and financial safety buffers at hand to battle global headwinds. This asset class trades at a tighter spread than developed market bonds, and there are always opportunities to buy into mispriced bonds at attractive prices even during times of uncertainty. This allows investors to lock in attractive yields over the long term.