Investment Highlights

• We maintain our HOLD call on FTSE Bursa Malaysia KLCI exchange-traded fund (FBM KLCI ETF) but trim our FV by 2.7% to RM1.78 (Exhibit 4) from RM1.83 previously. Our FV is based on our fair values (for stocks under our coverage), consensus fair values (for stocks not under our coverage) and the last traded price (for Hap Seng Consolidated, which is not under any coverage). It is at a premium to its NAV of RM1.55 (Exhibit 3).

• In 2019, the ETF reported an investment loss of RM82,559 (comprising gross dividend income of RM96,240 and net investment loss of RM178,799), which was slightly lower than an investment loss of RM97,828 in 2018. Having accounted for expenditure and tax, it registered a net loss after tax of RM119,480, which was slightly lower than a net loss after tax of RM138,893 in 2018 (see Exhibit 1). This is reflective of a still subdued Malaysian equity market in 2019 during which the FBM KLCI only lost 6% to 1,589pts from 1,691pts, compared to a drop of 5.9% to 1,691pts from 1,797pts in 2018.

• We are cautious on the outlook of the FBM KLCI amidst the global Covid-19 outbreak (that disrupts the global supply chains, commerce and tourism) and the political impasse locally (that raises the market risk premium, hurts the ringgit and could potentially stall the public procurement system).

• In a brighter scenario where the Covid-19 outbreak and political impasse are to come to an end sooner than expected, we believe potential market rerating catalysts could come from investors’ revived appetite for risk assets, particularly, emerging market (EM) equities including Malaysian equities, conditional upon: 1. the US Fed is to maintain its narrative of not tightening monetary policy (which shall keep the dollar’s strength in check); 2. the sustained high equity valuations in developed markets (DM), prompting investors to look elsewhere for opportunities, including EM equities; and 3. the US-China trade tensions are to continue to ease.

Source: AmInvest Research - 27 Feb 2020