Selling pressure expected to dissipate

PETALING JAYA: Incremental selling pressure is expected to dissipate on the back of rising cash levels, tightened margin financing criteria and the assumption of no large-scale redemptions, says AmInvestment Bank Research (AmInvest Research).

The research house said it expects cash levels to have now reached 12% of assets under management (AUM) in mid-March 2025, extrapolating the selling momentum it saw in January 2025.

“This is close to peak cash levels (since we began compiling the data) of 14% of AUM, we saw in mid 2022.

“Based on our portfolio pulse data, cash levels rose by 1.1 percentage point month-on-month to 9% of AUM in January 2025,” the research house said in a report recently.

Nevertheless, AmInvest Research said it believes that there will be no rush to redeploy cash, as geopolitical uncertainties remain.

Instead, the research house said it is their expectations that winners would be sold to fund positions in bombed out sectors.

“Artificial intelligence (AI) and data centre (DC) related names remain a risk in our view, being crowded trades.

“Exposure to industrial and utilities are high at 19% of AUM (versus about12% between late 2022 and early 2023) and 6% of AUM (versus about 2% between late 2022 and early 2023).

“To reiterate, developments relating to the AI diffusion rule and DeepSeek reduce the total addressable market for DCs in Malaysia,” the research house said.

AmInvest Research said it conducted a screening exercise to identify sectors that offer the most value.

It found that technology and oil ang gas names currently trade at big discounts to their historical averages and peak.

Specifically, these sectors were found to be trading at more than 30% discounts to their historical averages.

“As the sustainability of earnings are in question, we further stress test earnings to see where valuations will land.

“This involves subjecting technology companies to order deferments due to trade war uncertainties and assuming crude oil prices fall to various levels for oil and gas companies.

Post-exercise, within our coverage, stocks that we like are Greatech Technology Bhd and Keyfield International Bhd,” the research house said.

AmInvest Research said as valuations are not necessarily attractive across the board, it is important for it to reiterate a selective approach, to prioritise companies with order certainty.

To stress test earnings, the research house made the assumptions of a flat 2025 earnings and for 2026 earnings to decline by 15% year-on-year.

“If we assume this, the KL Technology Index would still be expensive with its price-to-earnings multiple rising to 33.9 times (from current 18.5 times) or one standard deviation above its five-year average.

“Replicating the exercise at a stock level (for those under our coverage), the name that stands out is Greatech (‘buy’ call with a target price of RM2.60), which would still trade in line with its five-year average.

As our base case, we do still expect 2025 earnings growth of 24% year-on-year, backed by an outstanding order book of RM785mil,” AmInvest Research said.

The research house added as the stress test valuations is also based on depressed earnings, it could represent an opportunity to bargain hunt.

This is especially if investors are confident of an eventual turnaround.

“For this to occur, we believe it is important to align with companies with the right structural tailwinds and with a strong management team,” AmInvest Research said.