KUALA LUMPUR: The low beta Malaysian equity market will see limited downside risk despite the fallout from Greece’s sovereign debt crisis, mainly due to low participation by foreign investors and ample liquidity in the system.

ECM Libra Investment Research head Bernard Ching Hong Yang said other factors were the inflow of hot money due to the strengthening ringgit, improving economy and stronger corporate earnings growth momentum.

“Over the past few weeks, several external events such as the European sovereign debt crisis, credit tightening in China and fraud charges against Goldman Sachs have raised concerns among investors,” he told The Edge Financial Daily.

Bursa Malaysia was not spared from the selling pressure although these external events had no significant impact on the Malaysian economy and the equities market.

Fortress Capital Asset Management Sdn Bhd CEO Thomas Yong said the correction in Asian markets was in part due to investors cashing in on gains that had taken place in the rally since the Lunar New Year.

“A lot of people are sitting on positions with unrealised profits, so there’s the question of whether you want to take some of that profit off the table,” he said.

However, for the next month or so, Yong said: “Frankly, we don’t see big drops because companies’ fundamentals are still firm and steady.”

ECM Libra’s Ching said recent external events might very well be the reasons investors were looking for to take profit, he said.

“This is especially so for Malaysian equities which are currently trading at a premium to regional equities but have lower earnings growth potential. As the dust settles, we believe money will pour back into equities again, though not necessary in a big way if correction is shallow,” he said.


TA Securities Research senior chartist Stephen Soo expects the FBM KLCI to trade sideways within the next two months.

He said better economic data would cushion downside pressure but was unlikely to push the market up, with much of the growth already reflected in current valuations.


Last week, Malaysia reported a 36.4% year-on-year (y-o-y) surge in exports to RM59.44 billion for the month of March and imports rising 45.3% y-o-y  to RM45.09 billion for the same period.

Malaysia is scheduled to release the industrial production data tomorrow while Bank Negara Malaysia meets on Thursday to decide on the overnight policy rate and gross domestic product later this month.

Based on ECM Libra Research’s top-down valuation, Ching expects the 30-stock FBM KLCI to close the year at 1,390 (15 times price-to-earnings), which means that there is little upside potential from the current level.

On stocks picking, Ching said investors needed to be selective given the higher risk level now and diminishing returns at such late stage of a bull market.

“We still like the banking sector on the back of expanding loans book, margin expansion from overnight policy rate, higher non-interest income from capital market activities and lower credit cost on improving asset quality.

“CIMB Group Holdings Bhd, Malayan Banking Bhd and Public Bank Bhd are our top picks for the banking sector,” he said.

Ching favours the power sector and in particular Tenaga Nasional Bhd for its improving power demand as well as the effect of the strengthening ringgit on its coal input costs and foreign currency debts.

The research house’s other picks are property, oil & gas and consumer sectors, which will benefit from improving demand as the economy recovers.

“For risk averse investors, we recommend liquid dividend-yielding stocks with low beta instead of holding cash due to low return amid a low interest rate environment.

“We like DiGi.Com Bhd, YTL Power International Bhd, Berjaya Sports Toto Bhd and PLUS Expressways Bhd,” he said.