May 6, 2014

Bursa Malaysia April Fund Flow

Current KLCI:  1,860 (5 May) YE KLCI target:  1,940 (unchanged)

bursa_malaysia_foreign_monthly_equities

April fund flows
 * Foreigners  turned  net  buyers  in  April,  but  small,  vs.  more aggressive net buying in the other Emerging ASEAN markets.  KLCI  valuations  sustained  at  rather  high  16.0x  12M  forward earnings and almost 2x PEG.
  * We  maintain  our  end-2014  KLCI  target  of  1,940  and  sector weights; we also remain selective on stocks.

 

What’s New
Foreigners,  who  have  been  net  buyers  of  Malaysian  equities  sincethe  last  week  of  March,  stayed  on  as  net  buyers  in  the  month  of April, totaling MYR0.7b (March: MYR0.5b net sell).

Compared  to  buying  prior  to  the  sell-down  in  Jun  2013,  the MYR0.7b  foreign  net  buying  in  April  was  small.  It  was  also  small
compared  to  more  aggressive  foreign  net  buying  in  the  other Emerging  ASEAN  markets,  namely ,  Indonesia,  Thailand  and Philippines. Net foreign buying in each of these markets  was easily more than double that of Malaysia.
April’s  foreign  net  buying  essentially  pared  down  the  foreign  net sell  position  for the YTD (Jan-Apr) to MYR5.0b  (2013: MYR2.4b net buy).  We  estimate  that  foreign  shareholding  in  Malaysian  equities was stable at the 23% level at end-April (end-March: 23.0%).

What’s Our View

The KLCI gained another 22.3 pts (+1.2% MoM) in April, after rising 13.6  pts  (+0.7%  MoM)  in  March.  For  the  4M  YTD,  the  KLCI  was  up 0.2%,  but  it  still  lagged  its  peers.  Much  of  this  was  due  to  the KLCI’s outperformance in 2013 (+10.5%) which  sustained  valuations at rather high 16.0x 12M forward earnings and almost 2x PEG.

There is no change to  our end-2014  KLCI target of 1,940  pegged to 15.8x  12M  forward  earnings  (+0.5SD  of  mean).  We  do  not  expect
major surprises in the current  1Q14 results reporting  season which will  conclude  end  of  this  month;  we  forecast  8.1%  core  earnings growth for the KLCI and 11.5% for our research universe.

We  continue  to  Overweight  construction,  and  oil  &  gas  with  nearterm  catalysts  being  contract  flows  to  sustain  the  earnings momentum.  We  also  Overweight  power  expecting  TNB’s  valuation gap to the KLCI to narrrow.  Beyond these, catalysts and thematics are lacking.  On  the macro front,  continuing  subsidy  rationalisation and  an  anticipated  rise  in  the  benchmark  overnight  policy  rate  by this year-end will continue to dampen consumer sentiment.

We  remain  selective  on  stocks;  our  top  picks  are  TNB,  GENM,  HL
Bank, AMMB, Bumi Armada, IJM Corp and MPHB Cap.

by Maybank IB