AS fairness markets around the globe proceed to get overwhelmed down, an fascinating prospect faces the Malaysian investor.
With international benchmarks such because the Dow Jones Industrial Average (DJIA) and S&P 500 Indexes buying and selling at ahead price-to-earnings (PE) multiples which have come off their file highs, it begs the query of whether or not Malaysian traders must be taking a look at placing extra of their cash into abroad markets.
Aside from seemingly toppish valuations of the Malaysian inventory market, there’s additionally this disturbing statistic – the Malaysian market has been on a dropping streak in the previous few years.
In reality, some Malaysians have for a while now, already “given up” on native equities, selecting to deal with investing in abroad stocks.
Take John Lee, a former fairness analyst who has been investing his private and household wealth into the US markets, shopping for solely their blue chips.
“We have lost interest in Malaysian stocks for some time now, choosing to put our money into blue chips in the US market. Of course, the current downtrend needs to be managed, but overall we are doing okay, returns wise,” he quips.
Similarly, ex-investment banker turned personal investor Ian Yoong Kah Yin says he has been investing in Hong Kong and Singapore stocks for about 10 years.
“It is better to have a portfolio of diversified stocks and securities – diversified by sector, currency and geography,” he says.
“There are tremendous opportunities in the United States, Hong Kong and Singapore markets, especially in the technology manufacturing sector.”
However, Yoong cautions that lots of info on abroad stocks stays inaccessible to retail traders.
Mise: With the current shift in the direction of foreign buying and selling with native brokers, shopping for abroad shares has turn into way more accessible for Malaysian retail traders.
“They will have to undertake primary research which may not be within the capability of many retail investors. This is especially relevant in the case of the foreign small and mid-cap stocks.
“This is why an alternative would be to invest in exchange-traded funds (ETFs). You have a wide variety of ETFs in the US markets and even in Singapore,” Yoong provides.
There are a quantity of legitimate the explanation why investing overseas is a rising development amongst Malaysians.
One is the difficulty of valuations.
That mentioned, if one goes by the PE ratio – which is usually used to worth an organization based mostly on its present share worth relative to its earnings – the native fairness bourse appears extra enticing now at 14.8 occasions when put next with the DJIA, which is buying and selling at 16.5 occasions.
However, nearer to residence, the Singapore Straits Times Index, which is buying and selling at a PE of 13.8 occasions, is cheaper than the native FBM KLCI.
Take for instance, some semiconductor and tech stocks in Malaysia that are buying and selling at greater than 50 occasions PE. Compare this to the Singapore market for example, the place typically, stocks in the identical sector commerce at round 10 occasions PE.
In reality, DBS Research has identified that Singapore has the “cheapest” tech performs in contrast with Malaysian and Thailand stocks below its protection.
Generally, a decrease PE signifies {that a} inventory or bourse is cheaper.
Fortress Capital Asset Management CEO Thomas Yong says after the current correction in US fairness markets, the valuations of most US shares have truly turn into comparatively extra enticing than native shares, given the interesting enterprise fundamentals of dominant giant international names there.
“Having said that, recent weakness in the US markets due to expectations of higher inflation and the Federal Reserve’s (Fed) response of accelerating monetary tightening measures may take some time to settle down.
Yong: After the recent correction in US equity markets, the valuations of most US shares have become comparatively more attractive than local shares.
“In addition, inflationary pressure will take months to ease considering the ongoing geopolitical developments such as the Russia-Ukraine tensions and the United States-China trade war,” Yong tells StarBizWeek.
Value Partners Asset Management Malaysia managing director Durraini Baharuddin says traditionally, Malaysian equities have been buying and selling at a premium versus different markets, largely as a result of excessive focus of institutional traders within the native market.
“This in some way provides assurance to investors that the stocks listed are safe, well managed and qualify as investable stocks based on the stringent screening criteria set by institutional investors,” she tells StarBizWeek.
The justification of valuations relies on how Malaysian fairness is included in a portfolio, she provides.
“If it is meant to track a designated benchmark, then the valuation is of limited concern. However if it’s to source alpha, then other considerations need to be taken into account including the health of the companies, liquidity, earnings growth and macro outlook,” says Durraini.
Fair valuation
Yong says just like many South-East Asian markets, the Malaysian market seems “fair” at present valuation.
“The Malaysian equity market has historically traded higher than its current valuation due to its defensive characteristics that is dominated by a strong domestic institutional presence.
“From a macroeconomics perspective, Malaysia achieved a strong 5% year-on-year gross domestic product (GDP) growth in the first quarter of this year that exceeded many economists’ estimates and is likely to perform even better in the second quarter, as the country has opened up its borders and eased all business and social Covid-19 disruptions.
“We are expecting to see more earnings upgrades within the Malaysian market which should be the key price driver in the near term,” Yong provides.
Comparing Bursa Malaysia to the Singapore fairness market, he says the latter has at all times been considered a steady and matured market the place progress inventory alternatives could also be considerably restricted.
Additionally, the Singapore semiconductor sector has at all times traded at a reduction to its Malaysian friends, even when many of these companies have factories working in Malaysia.
“In fact, these semiconductor businesses operate mostly out of South-East Asian countries but are frequently listed at discounted valuations in Singapore,” Yong provides.
Apart from semiconductor and tech, Yong says that within the present market surroundings, there’s an funding angle the place Singapore actual property funding trusts (REITs) are involved.
“Despite an environment of rising interest rates that make dividend yields from stocks like REITs less appealing, the recovery or reopening play provides an investment case for certain REITs.
“The idea is that once the underlying businesses stabilise and have improved, the asset owners (REITs) can demand rental reversions and hence eventually achieve higher dividend pay-outs for investors.”
Besides valuation-related causes, there’s additionally the rising ease of with the ability to dabble in abroad stocks.
Malaysian retail traders can now commerce and spend money on abroad markets pretty simply with brokerages like Rakuten Trade Sdn Bhd and MIDF Amanah Investment Bank Bhd having developed user-friendly apps and techniques in current occasions.
Rakuten Trade CEO Kazumasa Mise says whereas there was lots of curiosity in foreign buying and selling over time, up till not too long ago, Malaysian retail traders needed to undergo sophisticated channels to take a position with foreign digital brokers and purchase foreign shares.
“With the recent shift towards offering foreign trading with local brokers, it has become much more accessible for Malaysian retail investors,” he tells StarBizWeek.
“Our newly-launched US trading service contributed close to 20% of total brokerage income in the month of April and we anticipate that retail interest in the foreign markets will likely continue to grow with the increasing awareness of the need to diversify one’s investments,” Mise provides.
According to him, buying and selling foreign shares utilizing Rakuten Trade’s system is “an easy process”, which requires two to a few days to activate.
“We launched foreign trading services for our Cash Upfront product earlier this year, which is accessible through the iSPEED.my app. With just one account, you can trade both US and Malaysian shares under one account.
“At Rakuten Trade, to trade foreign shares, you can deposit ringgit into your cash upfront account as usual. The currency exchange is done automatically when you buy and sell.
“For more advanced trading options, we are also looking to offer foreign currency wallets soon.”
In phrases of brokerage charges, he says the brokerage is providing the identical charges for each Bursa Malaysia and US markets, ranging from RM7 and capping it at RM100.
“One point to note is that on our platform, real-time share price feeds are available for free while others may impose a service fee.”
Mise says based mostly on information, the brokerage is seeing extra merchants which might be conversant in the native market increase into foreign buying and selling, which can also be why it’s offering training and buying and selling concepts geared at numerous ranges of foreign buying and selling.
“Based on collected data, the most popular US shares are Grab, Vanguard and Apple.”
Another purpose for investing overseas is the possibility to have a foreign money hedge.
This is very given how a lot the ringgit has weakened towards international currencies such because the buck and the Singapore greenback, which only recently hit a file excessive towards the ringgit at 3.17.
In the identical vein, Value Partners’ Durraini argues that the aim of taking a look at valuations is to determine securities which have been mispriced and seize the upside.
“If an investor takes this approach, he or she should be looking at it from a medium to long-term basis. Other factors to account for include foreign exchange (forex) risks – in this time of rising rates and fluctuations in forex, even strong gains can be offset by forex losses.”
Casting the web far
Like many, Fortress’ Yong says that by widening funding selections, for instance by investing abroad, the risk-reward profile of funding portfolios will be improved.
What’s extra, there are actually quite a few inventory brokers, asset administration corporations and mutual funds providing routes for Malaysians to take a position into abroad markets, he provides.
Says Durraini: “Investing overseas has been seen as a key way to diversify investments for investors – and the recent pandemic and its impact on the markets is testament to its importance.”
She says diversifying sources of alpha and earnings is a key technique to protect and develop wealth.
“In the past 20 years, we have seen the proliferation of unit trusts products that gives (local investors) access to overseas investments – while this option is workable, it is also costly (because of sales charges and higher management fees) and may have an impact on total returns in the medium to long term.
“Another option to consider and which is used widely in developed markets like the United States, South Korea, Japan and Taiwan is ETFs listed on Bursa Malaysia, which are essentially funds that are listed and passively tracks designated indexes.”
According to her, this instrument is clear and value aggressive because it doesn’t incur any gross sales cost and has a decrease charge than energetic funds.
“As it is listed – investors can also check its value on a daily basis to better understand their own investment portfolios, compared to unit trusts products that are unlisted.”
Rakuten Trade’s Mise says the brokerage “always encourages having a healthy mix of local and foreign shares to diversify your portfolio and minimise risks.”
“There are different opportunities for growth in different markets and if an investor only invests in one, they are missing out on opportunities for more consistent gains,” Mise provides.
“You might even see your portfolio performing better than expected even if one market does not perform as expected, or more consistently, when one market performs well and the other doesn’t.
“Foreign stocks present different opportunities for investors than what may be available in their local market. Many well-known shares are listed overseas, and investors can stand to benefit as a result of global trends or what’s in the news.”
MIDF Research says having foreign holdings, which “plausibly” have a decrease correlation coefficient in relation to Malaysian equities, will improve the risk-adjusted returns of an total portfolio.
“In essence, the lower the correlation coefficient of various assets in a portfolio, the better the diversification effect.
“The secular outlook of the world’s equity markets (including the United States, Europe and Asia) is wholly dependent on the underlying corporate earnings performance which in turn is underpinned by macro trajectory.
“In this regard, we believe the prevailing economic ordeals will find its trough in due course. In summary, buy on weakness and stay long for the long term,” MIDF analysts inform StarBizWeek.
Fortress’ Yong says that over the medium-term, investor sentiment within the US market shall be dominated by inflationary issues and the Fed’s hawkish stance in the direction of financial coverage tightening.
Durraini: Historically, Malaysian equities have been buying and selling at a premium versus different markets largely as a result of excessive focus of institutional traders.
“However, the longer-term outlook of the many global leading names listed in the US markets remain fundamentally sound.”
Alternative investments?
Meanwhile, within the rush to spend money on various investments, some Malaysians have, or are contemplating, placing their cash in issues like cryptocurrencies or foreign exchange platforms.
To this, Value Partners’ Durraini says info on this house is restricted and will be depending on unverified sources and “comments from the Internet.”
“One has to exercise caution investing in these instruments. Opt for alternative instruments that are approved by the regulators utilising a safer structure for a more sustainable portfolio of investments,” she provides.
Yong says these “exotic” investments may create pleasure and generally provide short-term surges in returns.
“Our advice to investors is to not place a large portion of their investment funds into these investments, as many of these are highly speculative and volatile in nature,” he says.
