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IMF Key region GDP forecast: World GDP forecast revised downward except for EURO area stay
flat
However growth prospect for Developed countries and Emerging markets is still positive
The world is still growing, but with diverging growth trend across major economic blocks
Similarly, growth for most Asia economics were downgraded except for China, India and
Philippines stay flat
In low inflation environment, PBoC (China) still has room to loosen monetary policy, expect
25bps cut in policy rate and 100-200 bps cut in RRR by end 2016
Despite FED (US) raise interest rate, ECB (Euro) and BOJ (Japan) still at ultra-loosing policy, more
easing expected from PBoC (China) too. Overall, liquidity expected to up 23%
Asian currencies weaken relatively to USD in 2015, we are not alone, but we (MYR) are the worst
at negative 22.50%
Most major indices have mixed performance for 2014 & 2015 respectively (one year gain,
another year loss) except Japan has 2 years gain consecutively and Malaysia has 2 years loss
consecutively
Indonesia still waiting for right policies to rejuvenate the market
Philippines is an expensive market + election year, expect more sluggish decision making by
government
Singapore is an Yield market, yield perspective is the highest among ASEAN peers
Thailand in need of stimulus, infrastructure projects have been a long wait. The index have been
boosted by healthcare & transport sector (tourist related)
Malaysia
Private consumption trend higher, crucial to spur growth. Overall GST, weaker ringgit,industry
staff layoffs and uncertainties abroad have shattered confidence level
Fuel subsidy cut, GST implementation, toll hike, income tax hike often the most disliked
policies are right policies to economy
Expect gradual appreciation on MYR once the above uncertainties are removed
Technology, Industrial products, consumer are beneficiaries of weaker MYR and post GST
sentiment, whereby market negative sentiment and tightening of credit facilities weigh on
property and finance sectors
Highest outflow in history from foreign ownership for consecutive 2 years (6.6bln & 19.5bln in
2014 & 2015 respectively)
Market valuation turning attractive as PE ratio back to mean level and PB ratio is -1 standard
deviation below mean
KLCI 2016 Target is 1820, pegged at 2016 PE of 15x
Overweight consumer, construction & building materials, industrial manufacturing, banking and
oil & gas (buy on dip)
Remain high investment level (more than 90%) and focus on stock picking
Continue to expect long term annual return of 4.5% - 5.5% in bond market
Expect continuous support from local institutional investors like pension funds and insurance
funds
OPR expect to remain at 3.25% throughout 2016
Extend & overweight duration vs benchmark
Overweight corporate bond & trade on Government bond to enhance return
Related Funds: RHB Global Fortune Fund, RHB Smart Treasure Fund, RHB Asian Income Fund
Current account and fiscal deficit woes remain a concern, foreign reserve have fallen at rapid
pace
Business and consumer sentiment falling back to post global financial crisis level
Exports await a global recovery, weaker MYR to boost competitiveness
Related Funds: Aberdeen Islamic World Equity Fund - Class A, Aberdeen Islamic Malaysia Equity Fund
- Class A
However, local institutional investors like Fund Managements, KWSP, KWAP, PNB, Tabung Haji
supported the market well
KLCI 2016 target is 1742, based on PE of 15x based on one year forward earnings
Market remain volatile, offering good trading opportunities
Selective in stock picking, maintain positive bias for growth stocks over value / defensive picks
Like Manufacturers with export earning, Construction stocks (MRT, LRT), Utility stocks with
stable earnings and dividend yield
Plantation and Oil & Gas may provide opportunities if commodities price rebound
Related Funds: Kenanga Asia Pacific Total Return Fund, Kenanga Growth Fund
Conditions could improve in 2016 as infra spending is set to rise approximately 30%
Bank of Indonesia adopted accommodative monetary policy to support growth
Sectors to benefit: construction, cement and property
Overweight as valuation looking better
Singapore
Government to push more productivity driven growth model
Valuation is cheap but earnings expectation is low
4% dividend yield provide downside protection Underweight
Thailand
Domestic demand is weak, while rising US rate and further moderation in China will weigh down
the market
Focus are on infrastructure, tourism and healthcare
No strong recovery or catalyst in sight underweight
Philippines
Valuation are attractive and would prefer conglomerates for exposure
Key event would be the presidential election
Overweight despite earnings downgrade to estimated 12% for 2016
Malaysia
Sentiment on MYR may improve with resolution of 1MDB, continued current account surplus
and Chinas investment in Malaysia
ValueCap expect to inject RM20bln in market
Foreign equity shareholding is low and become relatively stable
Market too optimistic on 2016 earnings growth
Consumer confidence is at record low, transportation cost has increased and debt % of GDP has
worsen vs Asian and Global Financial Crisis
Focus on yield, mid cap manufacturers / exporters and selective large caps Neutral
REITs Sector
Australia
Australia Nichesectorse.g.childcareandhealthcareREITswithhigheryieldingassets
REITsofferinggrowthprospectseveninthefaceofachallengingmacroenvironment
Long lease expiry profile is due to long leases signed with child care operators
Japan
Tourists to Japan increases tremendously (mainly China, Korea and Taiwan)
Strong case for hospitality theme in Japan
Hotel occupancy rate very high, pushing 90%
Office vacancy rate averaged 4.7% end sept 2015
Singapore
Singapore REITs 10-years historical forward yield around 6.9% vs 10-years government bond
yield around 2.5%
Attractive on high yield spread
Related Funds: AmAsia Pacific REITs - Class B (MYR), AmSchroder European Equity Alpha
National property average selling price and sales value have significant growth, however Chinese
property developer PE at -1 SD lower
Chinese government's anti corruption campaign has driven, Chinese consumption companies to
adjust their business models
Related Funds: Manulife India Equity Fund, Manulife China Equity Fund
Strong international recognition with multiple accolades i.e. First investment potential, Top 3 in
foreign trade, Easiest place to do business, Most transparent, Least corrupt country in Asia
Consistent and steady GDP growth, back with well diversified economy (less susceptible to single
sector shocks
From third world to first over the span of a generation
The resilience of Singapore economy is reflected in its strong currency
Studies suggest that companies with strong governance perform better and will reduce
accounting risk, asset risk, liability risk and strategic policy risk
Expansionary 2015 budget, looser monetary policy, successive won in 2015 election, both PE &
PB at multi years low
Continuous evolution has always been Singapore's strength - evolving from manufacturing,
services to a knowledge based economy
One of the highest dividend yield market among Asian peers, contribute more than 50% of total
return of Singapore equities
Singapore has strong track record of sustainable dividend payout
Large REITs market as in total market capitalization in Asia Pacific
Stable total returns with the 3R - Resilient business model, profits and cash flow + Reliable
management + Repeatable dividend payouts
Optimal balance between Dividend Anchors (High and sustainable dividend yielding stocks, DY of
3~10%, 70~80% of portfolio) and Dividend Growers (Quality stocks with strong business growth,
DY of 1~3%, 20~30% of portfolio)
They have flexibility to invest offshore with take into consideration of currency view
Related Fund: Affin Hwang Select SGD Income Fund - MYR
Most of Asia regional market performance under negative territory (Local currency) for the
period of 31 Dec 2014 till 07 Jan 2016
MSCI Asia Pac ex Japan index and EPS trend downward
Previously the main drivers of Asian growth over the last several years are global trade, China
and commodity boom, but all three are in a structural downturn recently
The crisis of 2008-2009 created a balance sheet recession. The crash in asset prices and the rise
in debt have affected household balance sheet and spending habits. They increased their savings
despite of interest rate dropped near zero
Similarly, corporations having faced a liquidity crunch after a crisis, were reluctant to spend
The problem doesn't end with just poor global growth, global trade has become less sensitive to
increases in income. In 1990s, a 1% rise in global income increased trade by 2.2% but now is just
close to 1%
While global growth is set for a modest recovery in 2016, the main component of rising demand
is consumption. Business investment has continued to struggle and unfortunately for Asia, this is
most important part of growth
The sluggishness of business investment is largely due to firms holding back capital spending in
responses to low sales
China policy priority is to rebalance the economy away from investment towards consumption
demand, this has the effect of slowing Chinese economic growth and that means less imports
We view hard landing as unlikely as the authorities have policy space, both monetary and fiscal
To ensure that growth does not collapse, they need to stimulate and they have been doing that
for over a year
In short, stimulate too little the markets will worry about growth, stimulate too much the
markets worry that the day of reckoning will be even more brutal and hence nervousness
Most economies have used monetary policy to the greatest extent possible, but Malaysia and
Indonesia have constrain in their use as MYR and IDR have been very weak
Easing has not been very effective in boosting economic activity. Credit growth has remained
poor despite easing
This leaves fiscal policy and we believe how aggressively it been conducted will be the crucial
determinant of how each economies perform in 2016
Countries that can generate domestic demand and productivity growth will be preferred.
Commodity importers stand to benefit and sectors that have exposure to rising US consumption
may boost growth
On the other hand, exposure to China, commodity exports and dollar debt will weigh on growth
Valuation in Asia are reasonable as market participants have largely discounted challenges facing
Asia
Neutral on the region. While valuation is not expensive, but we don't see any catalyst in near
term for the market to re-rate
Opportunities exist for the bottom up stock pickings. Companies feeding into US consumer,
dollar earners, beneficiaries of low commodity prices, government spending and valuation plays
thrown up by market volatility
Related Funds: Eastspring Investments Global Leaders MY Fund, Eastspring Investments Small-Cap
Fund