(TheEdgeDaily)KUALA LUMPUR: The time is now to buy into emerging markets' cyclical stocks in the engineering, construction and financial sectors, given markets globally have bottomed, said an equity strategist.
JP Morgan Securities (Asia Pacific) Ltd managing director and chief Asian & emerging markets equity strategist Adrian Mowat said utilities and telecommunication stocks might appear "dynamic to investors" but were defensive and would not be fluid during the period of an economic recovery.
"Generally, I won't want to risk on utilities and telecommunication stocks in an emerging market now. I also don't have a strong view on commodities," he told a press conference yesterday.
Mowat said engineering and construction stocks stood to have a margin of improvement as infrastructure works in particular would benefit from falling steel and copper prices, adding that dipping coal prices for power generation would also lower the input cost of cement.
He said the Malaysian market's sector composition had quite a large weighting on utilities which would be less attractive to investors who wanted to ride on the recovery.
Mowat said cyclical market returns would be more substantial by looking at the construction stocks versus telecommunication firms.
"You will see capital flow back into the emerging markets in the region and Malaysia will benefit from that. I think it has started but is not going to be huge," he added.
Mowat noted that the equities market would become more expensive in the recovery stage as analysts would keep revising down earnings while the market would be discounting into the recovery.
Asked if Malaysia had bottomed, he said emerging markets had hit their lows in October last year while that of the developed markets happened in early last month .
On whether Malaysia's estimated budget deficit of 7.6% in 2009 would deter investors, Mowat said that should not be a factor as public sector debt to GDP in the emerging world was well contained, adding that most of the bond market struggled mainly due to lack of supply and captive buying instead.
"Bear in mind, the Malaysian government also owns large outfits, like the oil company that isn't listed," he said.
Read in between the lines....Malaysia market is too defensive, too commodity-based, so don't expect foreign money to pour in. Also note that these buggers want play hit and run on high beta markets(sell into rally in a nicer word).
Chances are local players are playing recently?. No wonder Ringgit to USD did not move at all.
I have watching very quietly from the sideline, nice to see billlion shares change hands and today hit quite a record....1.9 billion. Technical indicator has been flashing overbought for almost two weeks. KLSE shows some volatility and wobbling. Take care!
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