Financial stocks bottoming out, says HwangDBS IM

Author: bicarajutawan | Category: Bursa Malaysia, Stocks

Financial stocks are bottoming out following the playing out of the subprime mortgage crisis in the US, said HwangDBS Investment Management Bhd (HwangDBS IM).

Its chief executive and executive director Teng Chee Wai said technical indicators pointed to the bottoming out of financial stocks and this presented an opportunity to buy low and potentially sell very high on the upswing.

He said historical market indicators that pointed to failures of major financial institutions often occur at market bottoms.

“At this juncture, these institutions tend to trade below their book value. The 1997 Asian financial crisis and the 1929 Great Depression reinforce the rewards of buying at market bottom.

“As an example, banks such as Bangkok Bank (Thailand) registered close to four times returns over the period of five years from bottom of the cycle,” Teng said.

He said HwangDBS believed that the recent Bear Stearns collapse constituted the “major financial institution failure”, which was indicative of the bottoming out of the market.

Teng added that the swift response from governments such as the US Federal Reserve’s intervention in the acquisition of Bear Stearns had proven that governments were now willing to step in to avert events that may pose further risk within the sector.

“The flow of smart money is also a sound strategy to emulate. The recent investment of sovereign wealth funds amounting to US$43 billion (RM141.9 billion) into bonds and securities of financial institutions reinforces our view that it is the right choice to invest in financial institutions now,” he said.

“As such, HwangDBS IM expects this sector to deliver potentially strong positive returns over the medium-term,” Teng told reporters here yesterday after HwangDBS IM launched two new funds that focused on investing in global financial institutions given the belief of the bottoming out of these stocks.

He said the newly-launched funds would focus on investing in global financial institutions such as Goldman Sachs Group Inc, Citigroup Inc, and Merrill Lynch & Co Inc.

Fixed income fund, HwangDBS Global Financials Capital Protected Fund (GFCP) aims to provide income for risk adverse investors over a three-year period horizon through the exposure to a basket of selected global financial stocks while seeking capital protection.

At least 85% of its net asset value (NAV) will go into zero coupon negotiable instruments of deposit (ZNID) while a minimum of 3.5% will be invested in an over-the-counter (OTC) option that is linked to the performance of selected global financial stocks. At least 0.2% will be retained in the forms of cash and money markets instruments. ZNID is a money market instrument from banks.

GFCP, which is expected to project an annual return of 6% to 8%, has an approved fund size of 500 million units, with the inception price of RM1 per unit until Aug 23. The minimum initial investment is RM2,000.

The open-ended mixed assets fund, HwangDBS Global Financial Insitution Fund (GFI), enables risk-tolerant investors to gain capital appreciation through the investments in securities such as equities, exchange traded funds, collective investment schemes, preference shares, convertible debt and warrants of global financial institutions.

The fund is hoping for an annual return of 15% to 20% for GFI. Its subscription period is two years and the maturity period is five years. GFI has an authorised fund size of 400 million units, with the initial offer price of 50 sen per unit during the 21-day initial offer period to July 30. The minimum initial investment is RM1,000.

The fund will invest up to 99.8% of its NAV in securities and structural products, while maintaining 0.2% in the forms of cash and money markets instruments. A maximum of 30% might also be invested in derivatives.

On HwangDBS IM’s asset size, Teng said: “We projected the target since end of last year. We recognise it is a challenging year, and we would be happy if we achieved the RM7 billion mark.”

As at end-June, its asset size stood at RM6.9 billion and it will introduce at least three offshore funds by year-end.

(Source: TheEdgeDaily)

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