KUALA LUMPUR (Aug 6): Institutional investors now think it is an opportune time to buy stocks at the local bourse after a sharp two-day selldown.

The ongoing shift in global fund flows and the resulting correction will likely be temporary, said Choo Swee Kee, the chief investment officer of TA Investment Management Bhd. Once the US began cutting interest rates, equity as an asset class would become attractive again, he noted.

“These massive movements of funds shook the market, but they do not indicate a downturn in the economy,” he said. “We expect the market to stabilise once these imbalances in funding reach equilibrium.”

In the past few years, traders have profited from the so-called yen carry trade, where they borrow at near-zero interest rates in Japanese yen to invest in assets elsewhere providing higher returns. The yen has surged as the Bank of Japan unexpectedly raised interest rates last week.

As traders face potential currency losses at a time when markets are bracing for the US Federal Reserve to cut rates, they are now forced to unwind the positions and cut their holdings to cover potential margin calls, sparking a massive global selloff that further worsens their losses.

“The market will be volatile in the short term and there may be more weakness in the market but it is difficult to time the market,” said Choo. “We do believe the market will recover eventually and this would be a good opportunity to restructure your portfolio and accumulate the right stocks for the next cycle.”

Malaysian stocks rebounded on Tuesday with more than 1,000 stocks posting gains and the FBM KLCI rose 2.5% as 28 out of 30 component stocks advanced by the closing bell. 

Blue chips may have a head start when foreign funds pour in, said Peter Lim Tze Cheng, founder and chief research officer of Trident Analytics Sdn Bhd. TA’s Choo also highlighted that blue chips may offer more stability and certainty compared to smaller companies.

Both Choo and Lim are bullish on the technology sector, among the worst-hit in the market stampede amid concerns over the disappointing earnings of their global counterparts and the design troubles of chips powering artificial intelligence (AI). There are now also fears over the health of the US economy.

Choo said he continues to believe technology is the way to future growth and likes ideas that could benefit from new developments in AI, data centres, chip design and the internet of things given the incentives.

For Lim, the semiconductor in particular would be in a multi-year cycle at least until 2027.

https://www.theedgemarkets.com/node/721873