Big potential in local fixed income, equities

CIMB-Principal’s Tang also bullish on soft commodities

KUALA LUMPUR: While most people look outside Malaysia for investment opportunities, CIMB-Principal Asset Management Bhd chief investment officer Raymond Tang sees opportunities in fixed income and equities within Malaysia, especially with foreign money coming in.

Raymond Tang … 

‘In the last 

three to five months, 

we’ve had lots of 

money coming in'.

“In the last three to five months, we’ve had lots of money coming in. This is partially because the central bank has raised interest rates. The early phase of investors will invest in bond instruments before moving on to equities,” he said.

Some bond yields have been coming down because of the huge demand from foreign money. As these yields go lower, equities will start to look attractive.

Raymond Tang … ‘In the last three to five months, we’ve had lots of money coming in.’

While Tang said equity markets may look expensive over the short term, they were not overpriced over the medium term.

The markets, he added, had already priced in the slower growth in the United States, the risk of a double-dip and the drop in Malaysia’s exports.

“In a worst-case scenario, if all these negatives come true, the market will stay flat. After all, expectations are already down. However, if there is just one catalyst or good news, the market will re-rate,” he said.

Tang said the New Economic Model (NEM) was a shift in the right direction. Under the NEM, the corporate bond market may also become active as more corporates raise money for projects.

Tang is also awaiting the Budget 2011 announcement. He believes that there could be more incentives for the services sector.

Valuation-wise, the average price/earnings (PE) ratio of the FTSE Bursa Malaysia KLCI is 15 times.

Tang said the market was now trading at 14 times PE and it may go down to 13.5 times next year.

“There is room for our market to move up gradually. Asia is slowly decoupling from the West. As growth in the US market is still questionable, Asia becomes more attractive.

“Western funds will realise that for every investment they put in the US, they are getting more in Asia,” he said.

It is on the back of this broad diversification move from the United States to Asia that makes Tang bullish over the mid-term outlook.

Tang is also bullish on soft commodities as he said arable land was becoming scarcer while populations continued to grow.

Soft commodities are also not recyclable.

“Every year there are more mouths to feed. To produce one kg of meat, you need 6kg of wheat. Animals are competing with humans for food,” he said.

By TEE LIN SAY
linsay@thestar.com.my