After declining by 3.6 per cent in January 2013, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) closed higher at 1,637.63 points, gaining a marginal 0.6 per cent return in the month of February 2013.
With lingering worries on 13th General Election, local investors including institutional, nominees, retail continued to be the net sellers in the month. As unconventional monetary policy has created excessive liquidity, foreign investors’ attention has returned to the Southeast Asia as foreign institutional investors were the only net buyers in February 2013.
Of the FBM KLCI’s thirty component stocks, losers edged gainers by 15 to 14, with one stock unchanged. Public Bank Bhd and Malayan Banking Bhd were the major leading movers, adding 11.211 points to the FBM KLCI, while DiGi.com Bhd and Telekom Malaysia Bhd were the major laggards, detracting 8.436 points from the index.
Notwithstanding the performance of the broad-based index, Aberdeen Islamic Malaysia Equity Fund-Class A and Kenanga Growth Fund outperformed the index by delivering 2.1 per cent and 1.3 per cent returns respectively in February 2013.
Funds that invest in Malaysian small to medium companies, such as OSK-UOB Emerging Opportunity Unit Trust and OSK-UOB Small Cap Opportunity Unit Trust outperformed funds that invest in Malaysian large caps stocks by delivering monthly returns ranging in between 2.4 per cent and 5.8 per cent.
After underperforming in 2012, the airlines sector outperformed the other sectors with a 4.9 per cent gain in February. AirAsia Bhd, the largest low-cost carrier in Asia, surged 8.3 per cent in single-day trading to RM2.86 on February 27, 2013 after it proposed a special dividend of 18 sen per share, in addition to a final payout of six sen per share.
Analysts are bullish on the growth prospect of AirAsia Bhd and upgraded their earnings estimates and target price after it delivered stronger-than-expected earnings result for the fourth quarter of the year ended December 31, 2012. Based on Bloomberg data, twenty-two out of twenty-nine analysts recommended buy calls for AirAsia Bhd (as of March 7, 2013).
Election fears provides buying opportunities
As at March 7, 2013, the price-to-earnings (P/E) ratios for FBM KLCI were at 14.9 times and 13.5 times based on 2013 and 2014 estimated earnings respectively, both of which are lower than its fair P/E ratio of 16 times.
We estimate the FBM KLCI’s upside potential to be around 18.2 per cent by end-2014 if the market normalises to its fair valuation level.
We do not believe that the coming election will have a significant long-term negative impact to the fundamental issues such as economic and earnings growth.
As such, we advocate investors to look past the coming election and invest accordingly. Market weaknesses on election fears may provide longer-term investors with opportunities to add to their holdings.
Having said that, amongst the various regional and single-country markets under our coverage, the Malaysian equity market is among those with the lowest upside potential and as such, we recommend investors who are currently invested in the Malaysian equity market to take on a more geographically-diversified approach and to consider switching some of their holdings into more undervalued markets such as the Greater China region and South Korea.