Published April 13, 2009

Public Mutual positive on equities

This follows KL's big, pump-priming interest rate cuts

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(KUALA LUMPUR) Malaysian fund manager Public Mutual expects gains in Malaysian equities following the government's massive pump-priming and the central bank furiously cutting interest rates to boost growth.

Giving a boost: Observers believe that Malaysia's economic stimulus package, among the largest in Asia, would provide a positive impetus for construction and building material stocks

Public Mutual, the country's largest private fund management firm by assets, sees buying opportunities in banks, consumer staples as well as cyclical stocks that tend to move up first when the economy recovers, said its CEO Yeoh Kim Hong.

'The local equity market is currently supported by below-trend valuations, easing inflationary pressures, expansionary fiscal and monetary policy,' said Ms Yeoh.

Malaysia's benchmark stock index the Kuala Lumpur Composite Index is trading at a price-to-earnings multiple of 15.6, a discount to its its nine-year average of 16.6, she said.

The market also offers a gross dividend yield of about 5.0 per cent, higher than its nine-year average of 3.4 per cent, she said.

'Stocks that we see value emerging include financials, consumer and cyclical sectors as well as selected stocks in the manufacturing and infrastructure sectors which have been de-rated by investors during the recent market consolidation,' she told Reuters in an e-mail interview.

Malaysia launched a second stimulus package worth RM60 billion (S$25 billion) in March to help the economy as the country heads for its first recession in more than a decade.

The central bank's overnight policy rate is now at a record low of 2 per cent, compared to 3.5 per cent six months ago.

The economic stimulus package, among the largest in Asia, would 'provide a positive impetus for construction and building material stocks,' said Ms Yeoh. She declined to name her stock picks.

Malaysian financials, such as top lender Maybank, and fourth-ranked RHB Capital have taken a beating this year due to concerns that banks' earnings would fall sharply due to rising bad debt charges given a worsening economic outlook.

Public Equity Fund, one of the 67 funds managed by the company, posted a 23 per cent drop in total return over the past one year versus the 25 per cent fall in the KLCI index, according to the fund company.

Malaysia's key market index has fallen about 40 per cent from its record high of 1,524.7 points struck in January 2008.

Singapore's main Straits Times Index has slid roughly 45 per cent in the same period.

The KLCI index has chalked up decent gains over the past two weeks, tracking gains in other Asian stock markets on hopes the worst may be over for the global economy.

Top builders IJM Corp and Gamuda have gained more than one-fifth over the past month, outperforming the wider market's less than 10 per cent gain.

But the two stocks are still down between 50 and 60 per cent from last year's highs. -- Reuters