Forget FBM KLCI as benchmark - for now

There are enough companies to invest in Malaysia and some of them I still consider cheap and attractive at this moment. This is the reason why I stay invested. However if one is to invest into Malaysia and use the FBM KLCI as the benchmark (I myself actually do), it may not be the right benchmark.

Typically, in the example of US stocks, one would use either S&P 500 or DJIA 30 stocks as benchmark.

Let me tell you why.

Just look at the list of companies as at 30 June 2016 and how much strength they will have moving forward in the near term.

1. AMMB Holding - One of the banking stocks, challenging for banks nowadays with low interest rate environment and high debt / GDP ratio in Malaysia
2. Astro Holdings - tough operating environment for Astro (I was right). Its IPO price was RM3 back in 2012. Now it is trading at below RM3.
3. Axiata - it is getting tougher for telco in Malaysia and most of the mature countries where Axiata is trading in.
4. British American Tobacco - even its manufacturing operation is shutting down. Just imagine, a solid stock like BAT having difficulties for the first time in many decades.
5. CIMB - just like AMMB above, loan growth is slow, NPL cropping up slowly and worse its investment banking (usually mainstay) is not doing well for several years now.
6. Digi.com - just like Axiata and in fact could be worse than Axiata as it is exposed to just Malaysia which has a tough telco operating environment.
7. Genting - slightly better but the business it is in is not getting easier as compared to the good old days.
8. Genting Malaysia - hopefully, the theme park - Fox will bring some cheers in 2017.
9. Hap Seng - probably the better performing stock in terms of performance but I am not so sure of its upside.
10. Hong Leong Bank - another challenging one, but probably better than AMMB and CIMB.
11. Hong Leong Financial - small significance as its weightage is very small.
12. IHH Healthcare - good nice growth but probably very expensive - tightly held with low free float of less than 10%.
13. IOI - palm oil stock is not that great as compared to perhaps 5 years ago.
14. KLCC Prop - will have decent consistent growth.
15. KL Kepong - another palm oil stock, same as IOI.
16. Maybank - perhaps better than AMMB, CIMB but still another bank which is facing challenges in Malaysia - for growth.
17. Maxis - same as Digi.com and competing head on aggressively. Little or no growth.
18. MISC - large portion of business dependent on oil and gas. Bad for last 2 years.
19. Petronas Chemical - oil and gas related, tough now.
20. Petronas Dagangan - a trading company, one of the better potential among the 30 companies.
21. Petronas Gas - gas related, another one in tough operating environment.
22. PPB Group - dependent on Wilmar which is largely operating in palm and edible oil industry. Not that bright in short run.
23. Public Bank - one of the solid banks, but growth will not be good as before.
24. RHB Bank - another bank, perhaps better than CIMB or even Maybank.
25. SapuraKencana - oil and gas, one of the better surviving operator, but the keyword is surviving.
26. Sime Darby - its 4 main operating businesses - properties, automotive, properties, plantation - all do not look bright.
27. Telekom Malaysia - has good potential but seems not be able to manage well, all the while.
28. Tenaga Nasional - the largest of the lot, and future seems promising now with the old IPP contracts out of the way.
29. Westports - one of the better ones and still with good prospects.
30. YTL Corp - future not that bright with its IPP (less prospects), other utilities and construction.

As you can see, the brighter prospects ones are like Westports, Tenaga and PDB. There are not much upside if one is to look at it. And if one is to benchmark your performance against KLCI, it perhaps may not be right.

Why has this happened in my opinion. Besides the performance and their outlook, many of the KLCI component stocks are government linked companies and it has been well supported by the large funds in Malaysia - i.e. EPF, KWAP, Khazanah, PNB and few more. As they have remain hugely invested, it is harder to do more with the investments in these companies.

This however does not mean there are no performing companies - just happened to be not many are from the KLCI companies.

Additionally, this reflects that most fund managers may have opinion that the Malaysian market is not cheap. This is true on the perspective of the large blue chip stocks. But as is most of the time, the more attractive counters are not these 30 companies but those that are valued at between RM500 million to RM5 billion.