Malaysian Stocks: Valuation Above Average, Growth Below Average

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Four Pillars of GDP: Private consumption and investments

Malaysia's GDP has been growing at a steady clip just above 5% over the last four quarters. Private consumption has been the main contributor to GDP growth, contributing almost 70% of it, but investments have also lent its hand.

Valuation above average, earnings growth below average

Malaysia is slightly more expensive as a whole, considering its price-to-earnings (PE) ratio relative to Asia, which is at about 17x for 2017CE*.

Earnings are the primary problem for the market, with analysts expecting a slight fall for the overall market in 2017. But investors may have been persuaded to stay with the attractive 3% dividend yield.

Malaysian Stocks

A. Stotz Four Elements: Malaysia’s rank relative to Asia

Overall, Malaysia is ranked as relatively unattractive, considering all our four elements: Fundamentals, Valuation, Momentum and Risk.

Fundamentals: Malaysia offers a low ROE below 10%.

Valuation: The price-to-book value is relatively cheap, and the dividend yield is above average.

Momentum: The market features poor earnings growth and poor price momentum.

Risk: The market has a low volatility profile.

Weak performance in the top 3 largest sectors in 3Q17

Top 3 largest sectors: Financials: 21% of the market; Industrials: 16%; Consumer Staples: 11%.

Best sector & stock: Materials: +8.6% & Press Metal Aluminium Holdings Bhd: +42.5%.

Worst sector & stock: Real Estate: -3.8% & Sunway Bhd: -45.0%.

*CE is consensus estimates

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About the Author

Dr. Andrew Stotz, CFA
Dr. Andrew Stotz, CFA is the CEO of A. Stotz Investment Research, a company providing institutional investors with ready-to- invest portfolios in Asia that aim to beat the benchmark through superior stock selection. The company also provides buy- and sell-side clients with financial models to value any company in the world and World Class Benchmarking to determine what companies are financially world class. Previously, as Head of Research at CLSA, Andrew was voted No. 1 Analyst in Thailand in the Asiamoney Brokers Polls for 2008 and 2009. He was also voted No. 1 Analyst in Thailand in the 2009 Institutional Investor magazine All-Asia Research Team Report. Andrew earned his PhD in finance at the University of Science and Technology of China in Anhui province, with a focus on answering questions raised by fund managers and analysts during his career about picking stocks and managing portfolios. In addition, Andrew has been a lecturer in finance for 22 years at various universities in Thailand. Since 2013, he has been the president of the CFA Society of Thailand. He is also the author of How to Start Building Your Wealth Investing in the Stock Market.