By Yantoultra Ngui
(Bloomberg) -- The funds that won big from Asia’s worst-performing major equity market placed their bets on technology stocks.
Eastspring Investments Small Cap Fund scored a 16.6% return in 2019, while Kenanga Syariah Growth Fund returned 15.6%, topping the list of Malaysian funds with US$100 million or more in assets, Bloomberg-compiled data show. That’s even as the benchmark FTSE Bursa Malaysia KLCI Index slumped 7.6%, set for the steepest drop since 2008. In contrast, the smaller cap gauge has rallied 22%.
Being prescient has paid off for Eastspring and Kenanga as the export-reliant economy faces headwinds from global trade tensions and a muted economic outlook at home. Both funds have one strategy in common: the tech sector, which has benefited from trade diversions due to the U.S.-China rivalry. They also expect the country’s biggest companies to rebound after losses this year.
The worst may be over for Malaysia as investors have set their expectations low despite lingering uncertainties, UBS Securities said in a report. “We think the market could trend higher once earnings growth bottoms and confidence recovers,” according to the Monday note, which expects the benchmark to reach 1,680 by end-2020.
The KLCI Index rose 0.1% to 1,562.88 as of 9:30am in Kuala Lumpur.
Here’s what the funds are buying:
The fund expects the tech sector’s “bullish trend” to continue for many more years, said Tung Yin Wai, who helps manage the 807 million ringgit (US$194 million) Eastspring Investments Small Cap Fund.
“We have some good themes like your 5G, your data centres and your storage enterprise, we think it will continue to grow regardless of the economic situation,” she said.
Malaysia’s technology index has jumped 26% in 2019 as companies like Inari Amertron Bhd. and ViTrox Corp Bhd. reap a windfall from the U.S.-China trade war. Malaysia shipped an additional US$2 billion of tariff-affected goods to the world’s two largest economies since the levies were imposed, according to the World Bank. Semiconductors and electronic circuits made up the bulk of exports to U.S.
Inari is among the fund’s top holdings, as well as glove maker Kossan Rubber Industries Bhd. and Alliance Bank Malaysia Bhd., according to data compiled by Bloomberg.
Kenanga Investors plans to buy both big and small stocks next year, said Chief Executive Officer Ismitz Matthew De Alwis.
“We think smaller caps still have a good chance of outperforming,” he said. “Nonetheless, we still think there could be a rebound in large caps after two years of negative performance” for the benchmark and the index of Malaysia’s 100 biggest firms, he said.
Ismitz sees value in oil and gas as well as palm oil as investor sentiment toward those sectors had been “depressed” for some time. He also plans to trade in certain companies and government-linked firms that could be undergoing reforms.
Kenanga Syariah Growth Fund’s top holdings include state electricity provider Tenaga Nasional Bhd., which is going through a restructuring as the government opens up the retail power sector to potential new players. The fund also owns shares in tech company Pentamaster Corp. and energy firm Yinson Holdings Bhd.
© 2019 Bloomberg L.P.