Malaysia top funds like tech stocks in Asia's worst major market

[KUALA LUMPUR] 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 16.8 per cent return in 2019, while Kenanga Syariah Growth Fund returned 15.5 per cent, 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 per cent, set for the steepest drop since 2008. In contrast, the smaller cap gauge has rallied 22 per cent.

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 US-China rivalry. They also expect the country's biggest companies to rebound after losses this year.

Here's what they're buying going forward:

Eastspring Investments

The fund expects the tech sector's "bullish trend" to continue for many more years, said Tung Yin Wai, who helps manage the RM807 million (S$263.5 million) Eastspring Investments Small Cap Fund.

"We have some good themes like your 5G, your data centers 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 per cent in 2019 as companies like Inari Amertron Bhd and ViTrox Corp Bhd reap a windfall from the US-China trade war. Bank Negara Malaysia estimated an additional US$1.4 billion of goods was exported by Malaysia to the world's two largest economies from January through August.

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

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.

Mr 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.

BLOOMBERG