Tuesday, 25 July 2017
Rakuten Head of Research Kenny Yee and Vice President Research Vincent Lau at Market Briefing yesterday for select media on the small- and mid-cap stocks for the second half of the fiscal year. With the spotlight on small- and mid-cap stocks shining brighter than ever this year, this market holds much potential for an investor. - The Star
KUALA LUMPUR: A rising tide lifts all boats.
For investors looking to ride on the inflow of foreign funds into the stock market, an online brokerage is telling clients to go small.
“If you look at the FBM Small Cap Index, there is still value to be found within this space.
“The average price earnings ratio (PER) of the FBM Small Cap Index is trading at around the 13 times earnings level,” said Rakuten Trade Sdn Bhd head of research Kenny Yee.
“Some companies are even trading at single-digit PERs and this is where we are looking at aggressively to promote,” he told a press conference here on its investment outlook.
But after a surge earlier this year, finding the undiscovered gems in the small-cap universe is getting tougher.
“These stocks usually have a higher beta, but it is also getting tougher to unearth all the good small companies,” he said, adding that not all small companies with cheap valuations were of good quality.
The FBM KLCI is trading at an average mean of 16 times its historical PER, which Yee reckons is “neither cheap nor expensive”, given growth expectations.
Yee believed that the benchmark index would end the year at 1,850 points from the current 1,760 points, representing a further upside of 5%.
While he continued to be optimistic on the outlook of the FBM KLCI, Yee also advocated a focus on small and medium-cap stocks for any possible high beta opportunities.
Yee also said small and mid-cap stocks could see an even steeper climb from the spillover effect of the larger caps.
“If what we expect comes true, whereby the influx of foreign funds comes through, then we will see a very positive (impact on) the KLCI,” he said.
On a related matter, Yee said corporate earnings would see a further improvement this year, building upon last year’s gains.
“After last year’s growth of around 5%, we are seeing better earnings growth this year and it may surpass the 6% level.
“Corporate earnings could be underpinned by growth in the banking sector.
“Consensus is that there could be a further downturn in the consumer or housing space, but many are still seeing loan growth within the banking sector,” Yee said.
He added that the ringgit could see an improvement and possibly retest the RM4 level on catalysts such as solid prospective foreign direct investment inflows, especially from China at an estimated RM240bil.
“Since the ringgit/US dollar has the closest correlation to the yuan/US dollar, any positive impact on the yuan should likely be positive on the ringgit,” Yee said.
Read more at http://www.thestar.com.my/business/business-news/2017/07/25/rakuten-undiscovered-gems-in-smallcap-universe/#w5JR6m2H4XohkM2i.99
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