Tuesday, 26 March 2013

Market Outlook and More by OSK-UOB Investment Management Berhad

A couple of days ago, I mentioned in my post about this seminar organized by Philip Mutual Bhd (Johor Bahru branch) that will feature speaker Mr. Pang Chon Song, Vice President of OSK-UOB Investment Management Berhad for Southern Region. 

Well guess what? I went to the seminar, made some new friends, listened and took home with me 4 pages worth of notes.

PhilipCapital at Taman Molek, Johor Bahru
Let's get to the juicy points from the seminar:

Outlook for Asian Economy for 2013
For the month of Feb 2013 itself, the Philippines Stock Exchange and the Jakarta Composite Index both gained 7.7%. A clear indication that the Asian market continues to meet economist prediction of another stellar positive growth performance in 2013 (barring any unwanted events such as earthquakes, floods or political unrest of course)

Key Conditions for Asian Market to Rise in 2013

  • Interest rate in G7 countries (US, UK, France, Germany, Italy, Canada, and Japan) countries remain low. Shown below is the current Interest Rate and the highest ever interest rate ever achieved for all 7 countries:
Interest Rate as of March 2013
Highest Interest Rate Ever Achieved

Note : I intentionally place the "highest interest rate" figures into the table as a means for comparison as well as to show how low is the current interest rate for these countries.

  • US Employment rate drops below 6.5%. Latest figure for March 2013 is 7.7%
  • European Central Bank committed to prevent the European Debt Crisis from getting out of control.
  • Macroeconomic data such as employment rate, housing, etc from US, Europe and Asia continue to be positive.
  • The United States Federal Reserve (FED) continue it's Quantitative Easing (QE) program. Basically the objective is to print more money in order to boost the weak US economy.
  • Japan continues in its effort to end deflation, targeting inflation of at least 2%
  • China manages to achieve it's GDP growth target of 7.5% in 2013.
All the above are Economic indicators that are directly linked to the Asian Markets. Each one plays a role in boosting the growth of the Asian Economy. In recent months, we see most of the 7 key factors being tackled with positive outcomes such as;
  1. G7's commitment towards maintaining low interest rates
  2. Cyprus debt crisis averted.
  3. US unemployment rate figures are dropping
  4. The FED has affirm that the QE will continue till the end of 2013
  5. China's new Government are getting their house in order.
Such is the optimism of major investors that even our Kuala Lumpur Stock Exchange (KLSE) have been notching gain after gain for the past 1 week despite the General Election being just around the corner.

Key Conditions for the Asian Market to Falter in 2013
A reverse of the 7 key factors mentioned earlier. 

What About Malaysia's Outlook?
Malaysia? Well concerns over the impending General Election has put many investors and fund managers on caution mode. Mr. Pang mentioned that for funds such as OSK-UOB Kid Trust Fund, their fund managers have already exited most of the holdings in Malaysia Equities, leaving only 8% invested. 50% have been allocated to Bonds, 30% into Asia and 12% is in the form of cash which will be used for buying opportunities after the election.

He also shared that if BN were to win with a reduce majority, we should continoue to see positive growth in Malaysia as the Economic Transformation Plan (ETP) can proceed without delays. A split decision on the other hand would be an  unwelcome scenario for fund managers.

Advice for Malaysia's Outlook before Election?... Invest at your own risk.

Market Outlook aside, what are OSK-UOB Fund Managers focusing on?
This is one of the insightful sharing from Mr. Pang that's worthy of my commendation. In terms of Asia investment, OSK-UOB Fund Managers have identified the following 5 countries with growth potential;
  1. China (Cheap valuation. China has the lowest P/E ratio among Asia countries at 10x)
  2. South Korea (Cheap valuation with a P/E ratio of 11x)
  3. Singapore (Attractive as a financial hub where many Multi-National Companies are listed in the Singapore Stock Exchange)
  4. Indonesia (Strong domestic consumption contributing to 65% of the countries Gross Domestic Product)
  5. Thailand (Recovering from the major flood of 2011 and has strong domestic consumption)
Why is Philippines not in the list?

Mr. Pang's answer to my question was simple. The Philippines P/E ratio is currently at 17x which is higher then the average P/E ratio of 15x among Asian Countries. That makes Philippines less attractive as it takes longer time (17 years) to recoup their investment. 

What are the Sectors OSK-UOB Fund Managers are looking at?
Mr. Pang highlighted that their fund managers have identified 3 sectors that has potential in terms of low P/E and growth. The three sectors are:
  1. Cosmetic Companies from Korea.
  2. Tobacco Industry in Indonesia
  3. Gambling Industry in Macau
To be honest, when Mr. Pang talked about the potential in Cosmetic Companies, the first two thoughts that came across my mind were K-POP and the birth of a new generation of beautiful men. Wise indeed were the fund managers from OSK-UOB to find such a niche sector for investment as some cosmetic companies in Korea are valuated at only 2x P/E! That's means the fund managers need only 2 years to recoup their initial investment or in other words 50% annual returns!

As for the tobacco and gambling industry, we all know that stocks from these two sectors have always performed well for many can't live without smoking and gambling is a difficult habit to shed. 

Recommended Funds from OSK-UOB?
Before Election:
OSK-UOB KidSave Trust Fund

After Election with BN retaining Majority:
OSK-UOB Malaysia Dividend Fund

After Election without clear Majority:
Stick to OSK-UOB Kid Save Trust Fund

Asia Countries:
OSK-UOB Asia Income Fund

Balanced risk:
1) OSK-UOB Kid Save Trust Fund
2) OSK-UOB Dana Kid Save (a syariah compliant fund that mirrors OSK-UOB KidSave Trust Fund) 

OSK-UOB Big Cap China Enterprise Fund (Mr. Pang dropped a hint that interested investors should purchase this fund before June 2013, after which once the China government announces their new policies and stimulus package, the potential for high returns are there)

Want to find out more about these funds?
You can obtained more information of the recommended funds by OSK-UOB Investment Management Berhad by visiting eUnittrust.com.my

Cheers and Happy Investing

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P.s : Thanks Nelson and Ayu for inviting me to the seminar!

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