Investment Linked Report May 2017 General Advice Warning The information contained in this material is general information and intended for the use of professional advisers, researchers and trustees. It does not take into account the objectives, financial situation or needs of any person. These factors should be considered before acting on this information. MCIS receives remuneration such as fees, charges or premiums for the products. Details of these payments including how they are calculated and when and how they are payable can be found in the relevant sales illustrations, or other disclosure document for each product. Past performance is not a reliable indicator of future performance The information in this presentation should not be considered a personal recommendation on any of the securities or stocks mentioned.
EXECUTIVE SUMMARY FBMKLCI Index closed the month of May in negative territory with a marginal lost of 0.19% at 1,765.87 points. The benchmark index traded sideways and in a narrow band of of 1,765 to 1,778 points throughout the month. The broader market underperformed the FBMKLCI, with the FBM EMAS declining a higher 0.5% m-o-m to 12,569.90pts. Malaysian Government Securities (MGS) strengthened further in May as the yield dropped 7-17 bps on the belly of curve. Ringgit strengthened from RM4.3390/USD to RM4.2795/USD while Brent crude oil prices fell from USD51.7/barrel to close the month with USD50.31/barrel. On domestic economic front, Malaysia posted stronger-than-expected 1Q GDP growth of 5.6% y-o-y in 1Q17 driven mainly by a surge in export growth. On the outlook, earnings performance is poised for a recovery this year. It is backed by better economic growth globally and domestically, recovery in oil and commodity prices, strengthening ringgit, bigger construction jobs and potential general election this year. We also do not discount the risks of the US fiscal expansion, economic slowdown in China and OPEC members/non-members commitment in controlling the oil price. We are cautiously optimistic on the equity market and the strategy is to buy on weakness. Meanwhile, the overall strategy for the fixed income market is still to buy on dips of MGS and corporate bonds. Based on the performance table below, on monthly basis, only Equity Fund had outperformed their benchmarks. Policyholders are encouraged to focus into regular premium given the current risk and volatile period of the economic and market condition. Risk adverse investors should focus into income fund due to its less volatile as compared to equity related funds.
AsiaPac Fund To achieve steady income stream with potential growth in the Asia Pacific Region over medium to long term. The aim of the Fund is to outperform the S&P Ethical Pan Asia Select Dividend Opportunities Index over periods of five or more years. To invest in Asia Pacific Ethical Dividend Exchange Traded Fund (ETF), managed by CIMB Principal Asset Management where the ETF is listed on the Singapore Stock Exchange. RM0.6799 RM30.7 million 15-July-2012 0.85% p.a. The ETF focuses on top 40 ethical and high yielding stocks in the Asia Pacific Region excluding India, Taiwan, Japan, New Zealand and Philippines. The fund provides country diversification across the industry that is traded in US Dollar. The Fund is considered low risk given the exposure to only one underlying securities with no attempt to select stocks individually or to take defensive positions in declining markets. Risk is managed at the management level, where the asset allocation of the fund to be reviewed on regular basis, and adjusted to commensurate with the Investment Team view on the relative attractiveness of each asset class. The following factors can potentially affect the value of the Fund; economic and political developments in related countries, foreign exchange fluctuation, illiquid and inefficient securities in the Emerging Markets, and the financial performance of the underlying companies. The target market is for investors who are seeking regional exposure from investment and at the same time, seeking for medium to long term capital appreciation with moderate market risk. benchmark by 198bps MoM (month on month). However for since inception period, the fund had outperformed the benchmark. ETF 80% 100% 87% Cash 0% 20% 13% 1 month (%) 4.17% 6.15% 3 months (%) 5.84% 9.15% 6 months (%) 12.31% 19.35% 12 months (%) 22.02% 21.60% 2 years (% pa) 13.02% -6.64% 3 years (% pa) 10.17% -2.26% 5 years (% pa) - - Since Inception 6.45% -0.62% annualised numbers. returns of the Fund are on a net * Index is S&P Ethical Pan Asia Select Dividend Opportunities sourced from Bloomberg. Other Charges: Switching, you are entitled to four free CIMB S&P Asia Pacific Ethical Dividend Exchange Traded Fund (ETF)
Balanced Fund The objective of the Balanced Fund is to provide security and income, while maintaining and potentially increasing the value of capital over the medium to long-term, through exposure across a range of asset classes. The Fund aims to outperform the performance benchmark over periods of three or more years. To invest in Malaysian equities and fixed income securities, including government bonds and corporate debt securities. The asset allocation is reviewed on a regular basis, and is adjusted commensurate with our view on the relative attractiveness of each asset class. RM1.1529 RM8.0 million 15-Oct-01 1.25% p.a. The Fund is considered medium risk given the mixed exposure of equity securities, fixed income and cash. The following factors can potentially affect the value of the Fund; consumer sentiment, financial performance of the underlying companies, industry and economy development, social and political factors, and the liquidity of the underlying assets. Additionally, levels of interest rates, and credit downgrades of defaults can affect the value of fixed income securities The target market is clients wanting the surety of insurance protection, with an element of potential upside investment exposure. benchmark by 18bps MoM (month on month). The underperformance was mainly driven by higher exposure of underperforming securities in the portfolio compared to benchmark. Malaysian Equity 40% 60% 43% Fixed Income 40% 60% 47% Cash 0% 20% 10% 1 month (%) 0.20% 0.38% 3 months (%) 2.39% 2.82% 6 months (%) 5.87% 6.90% 12 months (%) 6.04% 6.12% 2 years (% pa) 3.01% 2.21% 3 years (% pa) 2.58% 1.11% 5 years (% pa) 3.28% 2.97% Since Inception 5.48% 5.63% annualised numbers. returns of the Fund are on a net Malaysian Government Securities (Bond) Sabah Credit Corporation (Bond) CIMB Bank Berhad (Bond) Sarawak Hidro Sdn Bhd (Bond) Tenaga Nasional Berhad (Equity) Malayan Banking Berhad (Equity) Projek Lebuhraya Utara-Selatan (Bond) Public Bank Berhad (Bond) Telekom Malaysia Berhad (Equity) CIMB Bank Berhad (Equity) * The benchmark index is a composite of 50% FBM KLCI Index and 50% of Markit iboxx ALBI Malaysia TR Index (Since Dec 12). Prior to that, the index used was HSBC Malaysia All Bond Index for the fixed income portion. Benchmark return is calculated on re-based basis. The source is from the subscription of Markit Indices. Other Charges: Switching, you are entitled to four free
Dividend Fund To achieve steady income stream with potential for capital growth over medium to long term by focusing mostly on high dividend yielding stocks and money market instruments. The aim of the Fund is to outperform the FBM KLCI Index over periods of five or more years. To invest in a broad selection of companies listed on the Malaysian Stock Exchange. Using a relative value methodology, the fund focuses on undervalued stocks relative to fundamental value, with the aim of achieving an income stream, together with some degree of long-term capital gains. The Fund is considered high risk given the exposure to equity securities. The following factors can potentially affect the value of the Fund; consumer sentiment, financial performance of the underlying companies, the performance of the industry and economy, and the share market in general, social and political factors, and the liquidity of the underlying assets. The target market is clients wanting the surety of insurance protection, with an element of potential upside investment exposure. benchmark by 45bps MoM (month on month). The underperformance was mainly driven by higher exposure of underperforming stocks in the portfolio compared to benchmark. RM0.8486 RM37.59 million 21-Jan-08 1.5% p.a. Malaysian Equity 80% 100% 85% Cash 0% 20% 15% 1 month (%) -0.33% -0.12% 3 months (%) 2.39% 4.26% 6 months (%) 5.85% 9.06% 12 months (%) 6.46% 8.60% 2 years (% pa) -0.47% 0.52% 3 years (% pa) -1.27% -1.95% 5 years (% pa) 3.00% 2.24% Since Inception 6.36% 2.15% Yield # 2.62% 3.10% annualised numbers. returns of the Fund are on a net * Index is FBM KLCI sourced from Bloomberg. # Yield data is sourced from Bloomberg, and MCIS. Sime Darby Berhad Telekom Malaysia Berhad Petronas Gas Berhad Maxis Berhad Petronas Chemicals Group Berhad Public Bank Berhad Malayan Banking Berhad Axiata Group Berhad DiGi.Com Berhad Tenaga Nasional Berhad Other Charges: Switching, you are entitled to four free
Equity Fund The objective of the Equity Fund is to achieve capital growth over the medium to long term by focusing on high quality equities listed on the FBM KLCI Index. The aim of the Equity Fund is to outperform the Index over periods of five or more years. To invest in a broad selection of companies listed on the Malaysian Stock Exchange. Using a relative value methodology, the fund focuses on the stocks whose shares appear undervalued relative to fundamental value, with the aim of achieving long term growth in capital value. RM1.0296 RM11.56 million 15-Oct-01 1.40% p.a. The Fund is considered high risk given the exposure to equity securities. The following factors can potentially affect the value of the Fund; consumer sentiment, financial performance of the underlying companies, the performance of the industry and economy, and the share market in general, social and political factors, and the liquidity of the underlying assets. The target market is clients wanting the surety of insurance protection, with an element of potential upside investment exposure. For the month ended May 2017, the fund had outperformed the benchmark by 18bps MoM (month on month). The outperformance was mainly driven by higher exposure of outperforming stocks in the portfolio compared to benchmark. Malaysian Equity 80% 100% 81% Cash 0% 20% 19% 1 month (%) -0.06% -0.12% 3 months (%) 4.35% 4.26% 6 months (%) 4.23% 9.06% 12 months (%) 5.65% 8.60% 2 years (% pa) -0.03% 0.52% 3 years (% pa) -0.55% -1.95% 5 years (% pa) 4.24% 2.24% Since Inception 4.72% 6.96% Yield # 2.52% 3.10% annualised numbers. returns of the Fund are on a net * Index is FBM KLCI sourced from Bloomberg. # Yield data is sourced from Bloomberg, and MCIS. Tenaga Nasional Berhad Public Bank Berhad Malayan Banking Berhad IOI Corporation Berhad Sime Darby Berhad Telekom Malaysia Berhad Petronas Chemicals Group Berhad Petronas Dagangan Berhad SapuraKencana Petroleum Berhad Maxis Berhad Other Charges: Switching, you are entitled to four free
Global Yakin Fund The fund aims for capital appreciation in the long term by investing in an international portfolio of Shariah-compliant equities and equityrelated securities of companies with good growth potential. The Fund is to feed into Aberdeen Islamic World Equity Fund (AIWEF) which managed by Aberdeen Islamic Asset Management Sdn Bhd. The Fund invests in shariah approved securities across the globe. The Fund seeks to achieve its objective by investing in an international portfolio of Shariah-compliant equities and equity-related securities of companies with good growth potential. The countries that the Fund will invest in will include, but not limited to Canada, United States of America, United Kingdom, France, Germany, Italy, Netherlands, Sweden, Switzerland, Japan, Australia, China, Hong Kong, Korea, Singapore, Taiwan, Brazil and Mexico. The Fund is considered low risk given the exposure to only one underlying securities with no attempt to select stocks individually or to take defensive positions in declining markets. Risk is managed at the management level, where the asset allocation of the fund to be reviewed on regular basis, and adjusted to commensurate with the Investment Team view on the relative attractiveness of each asset class. The following factors can potentially affect the value of the Fund; economic and political developments in related countries, foreign exchange fluctuation, illiquid and inefficient securities in the Emerging Markets, and the financial performance of the underlying companies. The Fund is suitable for investors who seek capital appreciation over a long term investment horizon and who are willing to accept high level of risk. benchmark by 117bps MoM (month on month). The underperformance was mainly due to underperforming of the underlying securities compared to the benchmark index. RM0.6501 RM29.53 million 8-July-2013 0.85% p.a. AIWEF 80% 100% 83% Cash 0% 20% 17% 1 month (%) 1.10% 2.27% 3 months (%) 1.78% 4.66% 6 months (%) 7.21% 11.23% 12 months (%) 12.05% 12.15% 2 years (% pa) 5.81% 1.86% 3 years (% pa) 6.47% 0.91% 5 years (% pa) - - Since Inception 6.93% 4.88% annualised numbers. returns of the Fund are on a net * Index is MSCI AC World Islamic sourced from Bloomberg. Other Charges: Switching, you are entitled to four free Aberdeen Islamic World Equity Fund (AIWEF)
Income Fund The objective of the Income Fund is to provide investors with security of income by investing in a mix of fixed income and fixed deposit securities. The aim of the Fund is to outperform the HSBC Malaysia Local Currency All Bond Total Return Index. To invest into underlying asset classes as per the Asset Allocation Ranges. The asset allocation is reviewed on a regular basis, and is adjusted commensurate with our view on the relative attractiveness of each asset class. The Fund invests in cash and fixed income securities including government bonds and corporate debt securities. RM1.3918 RM27.4 million 15-Oct-01 0.5% p.a. The Fund is considered lower risk given the exposure to cash and fixed income securities. The following factors can potentially affect the value of the Fund; consumer sentiment, financial performance of the underlying companies, the performance of the industry and economy, and the share market in general, social and political factors, and the liquidity of the underlying assets. Additionally, levels of interest rates, and credit downgrades or defaults can affect the value of fixed income securities. The target market is clients wanting the surety of insurance protection, with an element of potential upside investment exposure. benchmark by 9bps MoM (month on month). The underperformance was due to underperforming of the fixed income securities compared to the benchmark index. Fixed Income 75% 100% 87% Cash 0% 25% 13% 1 month (%) 0.80% 0.89% 3 months (%) 1.55% 1.37% 6 months (%) 4.14% 4.75% 12 months (%) 5.37% 3.64% 2 years (% pa) 5.17% 3.80% 3 years (% pa) 5.45% 4.16% 5 years (% pa) 3.63% 3.57% Since Inception 6.75% 3.87% annualised numbers. returns of the Fund are on a net Malaysian Government Securities Government Investment Issue YTL Corporation Berhad PBFIN Berhad BGSM Management Sdn Bhd Sabah Credit Corporation Perdana Petroleum Berhad Sarawak Hidro Sdn Bhd Bank Pembangunan Malaysia Berhad CIMB Bank Berhad * The benchmark index is Markit iboxx ALBI Malaysia TR Index (Since Dec 12). Prior to that, the index used was HSBC Malaysia All Bond Index. Benchmark return is calculated on rebased basis. The source is from the subscription of Markit Indices. Other Charges: Switching, you are entitled to four free
Jati Fund The Jati Fund is invested in accordance with Shariah principles in Shariah sanctioned equities, money market instruments, and fixed income investments. The aim is to provide security and income, while maintaining and potentially increasing the value of capital over the medium to long-term. The Jati Fund is not a takaful product. To invest in a broad selection of Shariah approved securities listed on the Malaysian Stock Exchange. Using a relative value methodology it looks to buy stocks whose shares appear undervalued relative to fundamental value, with the aim of achieving an income stream, together with some degree of long-term capital gains. The Fund is considered high risk given the exposure to equity securities. The following factors can potentially affect the value of the Fund; consumer sentiment, financial performance of the underlying companies, the performance of the industry and economy, and the share market in general, social and political factors, and the liquidity of the underlying assets. The target market is clients wanting the surety of insurance protection, with an element of potential upside investment exposure. benchmark by 293bps MoM (month on month). The underperformance was mainly driven by higher exposure of underperforming stocks in the portfolio compared to benchmark. RM0.9069 RM12.18 million 15-Oct-01 1.35% p.a. Malaysian Equity 80% 100% 84% Cash 0% 20% 16% 1 month (%) -1.63% -1.30% 3 months (%) 1.73% 3.36% 6 months (%) 6.36% 7.59% 12 months (%) 6.11% 7.39% 2 years (% pa) -0.64% 0.90% 3 years (% pa) -1.14% -0.85% 5 years (% pa) 2.73% 3.62% Since Inception 3.87% 6.74% Yield # 2.12% 2.55% annualised numbers. returns of the Fund are on a net SapuraKencana Petroleum Berhad Sime Darby Berhad Tenaga Nasional Berhad Petronas Dagangan Berhad Telekom Malaysia Berhad Petronas Chemicals Group Berhad MISC Berhad UMW Holdings Berhad IHH HealthcareBerhad Axiata Group Berhad * Index is FBMS Index sourced from Bloomberg. # Yield data is sourced from Bloomberg, and MCIS. Other Charges: Switching, you are entitled to four free
Equity Market Review and Outlook Market Review FBMKLCI Index closed the month of May in negative territory with a marginal lost of 0.19% at 1,765.87 points. The benchmark index traded sideways and in a narrow band of of 1,765 to 1,778 points throughout the month. The broader market underperformed the FBMKLCI, with the FBM EMAS declining a higher 0.5% m-o-m to 12,569.90pts. Average daily value traded on Bursa in May was 6% higher m-o-m at RM2.99bn. On domestic economic front, Malaysia posted stronger-than-expected 1Q GDP growth of 5.6% y-o-y in 1Q17 (+4.5% in 4Q and +4% in 2Q). The surge in the 1Q reading was driven mainly by a surge in export growth. Meanwhile, the headline inflation rate slowed to 4.4% y-o-y in April 2017 (+5.1% in March and +4.5% in February). This was mainly on account of slowdown in the cost of transportation amid lower fuel prices and a fading low base effect during the month. Globally, the second reading of US real GDP growth was revised higher to an annualised growth of 1.2% in 1Q17, from +0.7% in the previous reading and compared to +2.1% in 4Q16. The higher reading was mainly driven by an upward revision in personal consumption and gross private investment. Meanwhile, eurozone GDP expanded 0.5% q-o-q in 1Q17, unchanged from the quarter before. It was expected led mostly by domestic consumption and business investment. Chart 1: FBM KLCI Weekly Chart Chart 2: FBM KLCI Monthly Pattern and Cycle Analysis Source: CIMB Research Source: Bloomberg Market Outlook & Strategy Technically, for the seasonally weak month of May, the local bourse was only down 2.19 pts or 0.12% m-o-m. The key index has been consolidating in a triangle in the past couple of weeks. Thus, we expect a near-term rangebound trading within a range of 1,790-1,761 over the next one-two weeks. A clear break out of the said range is required in order to determine the direction. June has traditionally been a marginally positive month for the KLCI with an average monthly return of 0.64% over the past 39 years. As such, the local bourse could stage a mild rebound and this would help June end in marginally positive territory. Going forward, we remain positive on the equity market on the back of better economic outlook, improving earnings, strengthening of the ringgit and potential election this year. However, short term issue in the US, slowdown in China and OPEC members/non-members commitment in controlling the oil price may provide some negative sentiment in the immediate term. This should provide opportunity to accumulate on weakness.
Fixed Income Review and Outlook Market Review Malaysian Government Securities (MGS) strengthened further in May as the yield dropped 7-17 bps on the belly of curve. Ringgit strengthened from RM4.3390/USD to RM4.2795/USD while Brent crude oil prices fell from USD51.7/barrel to close the month with USD50.31/barrel. On economic data, Malaysia CPI in April 17 eased to +4.4% vs +5.1% high as of in March 17 YoY. Transport cost continues to dominate the headline inflation at +16.7% in April 17 (Mar +23%). The +5.1% in March is expected to be the peak for the rest of the year due to low base last year from transportation cost, though it is expected to remain above 4% for the rest of the year. Malaysia 1Q2017 GDP beats all market expectations at +5.6% (4Q2016: 4.5%), the highest in 2 years. The result was supported by domestic demand, trade growth and manufacturing activities. Trade surplus eased to MYR 5.4b in March 17 compared to MYR 8.7b in February 17. Both export and import rose by +24.1% (+26.6% in Feb) and +39.4 %(27.7% in Feb) respectively in March 17. The jump in import is mainly contributed by imports of intermediate goods (+36.3%) and capital goods (+82.4%). The auctions unveiled in May 2017 are as follows; Government Auctions in May 2017 Issue Issue Date Amount Bidcover Avg Yield (RM million) (times) (%) 30-year New Issue of GII (Mat on 5/47) 8-May-17 2,000.00 2.39 4.895 10-year New Issue of MGS (Mat on 11/27) 16-May-17 3,000.00 3.34 3.880 7-year Re-Issuance of GII (Mat on 8/24) 31-May-17 3,000.00 2.48 3.926 Table 1: Government Auctions in May 2017. Source: Bank Negara Malaysia Source: Bloomberg Source: Bloomberg Local government debt securities continue to rally in May 17, in line with the strengthening Ringgit. Foreign investors start to overweight local debt as they deem the yield to be attractive and at the back of the view that the ringgit could strengthen further. US Treasury on the other hand rallied to 2.20% at end May 17 (Apr 17: 2.28%) due to lackluster economic data in May, though market still expects the Fed to hike rates in the upcoming meeting, 14 th June 2017. Market Outlook & Strategy With the strong foreign buying interest in the market, we take the opportunity to realize some profits ahead of the FOMC meeting which will be held in mid of June. Although the external risk factors such as higher Fed rates expectation, Brexit and fluctuation in crude oil prices may cause volatility in local bond market, we believe bonds still provide attractive yields given stable monetary stance from BNM and strong fundamental in local market. As such, we will keep looking to buy on dips of MGS and corporate bonds if the opportunity arises.