By utilizing Factset ownership data for active institutional funds and benchmarking MSCI Malaysia’s 32 stock constituents, Maybank IB crowding monitor indicates that active funds are now most overweight in financials (47.3% of total active value) compared to six months ago. With system loans growth still fairly robust and improving asset quality, its bank analyst Desmond Ch’ng asks to stay positive on the sector (Malaysia Banking dated 1 April).
However, it is noteworthy that the consensus re-rating momentum has slowed because of the sector’s strong performance so quantitatively, the house prefers Public Bank, Hong Leong Bank and Bank Islam as these names remain below the 50th %tile of the sector PB box plot.
What the “smart money” is saying
MSCI Malaysia has gained an additional 1% in USD returns since our last update in Mar and our studies currently indicate that the market’s performance profile is transitioning back towards large caps and value style stocks as evidenced by MSCI Malaysia’s 1 year rolling returns of the large vs small caps and Value vs Growth indices. This perceptible shift away from a risk-on mode just one month ago is further corroborated by our factor performance tracker (Fig 12) which also exhibits a skew towards value and low volatility factors. In this regard, we therefore see that the best risk-reward lie in sectors where active funds are underweight MSCI with stable/rising analyst consensus momentum – here, Nestle Malaysia and HL Bank stand out.
Mid-cycle rotations to favour Value factors
MSCI Malaysia is still fairly valued at 14.1x forward PE vs 5 year mean of 14.9x but as we approach mid-cycles of this market’s bull rally, sector selection and rotational timing will be key to protecting alpha. Aside from the aforementioned picks, we believe Consumer Staples’ strong performance still has legs as the sector trades at 25th %tile. Maybank IB said it would advise caution on Utilities, which has performed well but now sees substantial downgrades by both analysts and active investors as valuations approach 5-year highs.
For Communication Services like Maxis and CelcomDigi which look attractive from active funds’ underweight to MSCI Malaysia vs their consensus rating momentum, the house said it also sees limited upside as sector P/E is rich and hovering above 80th.
