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Thursday, November 14, 2013

BIMB: Fund flows in region will be erratic

Posted on 12 November 2013 - 05:39am

PETALING JAYA (Nov 12, 2013): Equity fund flows within the region are expected to be erratic over the next few months and hence should impact the performance of the local bourse, said BIMB Securities Sdn Bhd.

"Judging by the recent net outflows (amounting to RM708 million in October), we do not anticipate any excitement ahead from the foreign funds thus our 'buy on weakness' stance," its head of research Kenny Yee said in a report yesterday.

With the latest outflow of RM708 million, year-to-date total net inflow currently lies at RM8.1 billion.

Still, BIMB Securities is perplexed of the euphoria on the equity markets at this juncture.

"We find prevailing situation within the global equity markets as overwhelming to say the least.

"Though the debt situation in the US has abated albeit temporarily, we cannot discount the debate to be rekindled as the Feb 7, 2014 deadline draws nearer. All these and we have not even touched on the US Federal Reserve and its financial steroids – quantitative easing," said Yee.

At current levels, Yee believes that the FBM KLCI on a 17.1 times price-to-earnings ratio (PER) for 2013 and 15.7 times PER for 2014 does not seem too alluring, maintaining his FBM KLCI target for 2013 at 1,750 points.

"While we concede that we may be wrong with our 2013 target at 1,750, we remain stubborn with this target as we see prevailing situation not too constructive for equities. We are still adamant that there could be more untoward incidents over the next month or two affecting the equity markets.

"For now, it seems like investors are willing to take a stand that the FBM KLCI will improve going forward," he said.

Meanwhile, Yee noted that October had been kind to the regional bourses as most recorded positive returns, buoyed by the high level of liquidity within the region.

"Topping the chart was the Philippines Composite Index with an impressive 6.4% jump while the Jakarta Composite Index performed rather credibly with 4.5%.

"On the flipside, the Shanghai Composite Index had underperformed for the month, going down by 1.5% culminating to a -5.6% year-to-date performance and remained as the only index to be in negative territory year-to-date," said Yee.

"Domestically, the local bourse is seen to be well supported by the local institutions. Budget 2014 was rather flat as most were centred on 2015 where the goods and services tax (GST), tax cuts coupled with subsidy cuts will all come into the picture," he added.

Nevertheless, Yee cautioned that impacts from the cuts in both the corporate and personal tax may be muted from the potentially higher expenses via the subsidy rationalisation and GST.

"Therefore, while earnings growth for 2014 may be clearer, the same cannot be said for 2015 whereby prospective uncertainties in 2015 may affect any preliminary forecasts," he said.

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