Investors seek growth thematic than dividend

The bias for growth stocks is because the many companies have been cutting back on the dividend payout to conserve cash amid the pandemic


GROWTH stocks such as in the technology field will remain the main investment preference among investors, while the dividend thematic could be in play once a stronger sustainable economic recovery gains footing.

The bias for growth stocks is because the many companies have been cutting back on the dividend payout to conserve cash amid the economic disruption due to the Covid-19 pandemic.

For the performance in the second quarter (2Q), the earnings of top 30 largest companies on the local bourse recorded negative growth at 7.4% on a quarterly basis and 49.1% on an annual comparison, which had brought down their total earnings to RM7.01 billion.

The banking counters, mainly the top four institutions — CIMB Group Holdings Bhd, Public Bank Bhd, RHB Bank Bhd and Malayan Banking Bhd (Maybank), have skipped declaring interim dividends. CIMB and Maybank, however, said they are committed to keeping to their respective dividend policies with a payout ratio between 40% and 60% of their net profit for the full year.

Areca Capital Sdn Bhd CEO and ED Danny Wong said investors, thus, have been showing an appetite for growth-thematic counters with a good recovery play such as the technology stocks.

“Dividend is not the prime theme this time as many companies will conserve cash amid uncertainty. However, investors are looking for cash dividends from their holdings.

“In this kind of condition, we believe there are good opportunities among those cash cows after their share prices were bashed down. Investors just need to be selective,” he told The Malaysian Reserve (TMR).

The technology stocks have shown resilience despite the pandemic as the disruption presents unprecedented digitalisation opportunities, causing the shares prices to exceed analysts’ expectations.

The Bursa Malaysia Technology Index closed 2.97% higher at 59.01 points yesterday, boosted by JCY International Bhd, which closed 14.07% higher to 77 sen. The rally in the Nasdaq composite further draws investors to the sector.

Wong said appetite for high-yield dividend stocks could return in the second half should the economy stabilise, laying the foundation for the stock market to gain.

“Some investors were disappointed with the quarterly results and dividends in 2Q. However, I think it is acceptable given the current market condition. As the pandemic is relatively controlled in Malaysia, we are in the view the worst is behind and will have a better half moving forward.

“Thus, this may boost some dividend stocks, especially those who are least affected and have a healthy cashflow,” he said.

There were some selective buying into dividend-paying counters like Nestle (M) Bhd, Petronas Gas Bhd, Petronas Dagangan Bhd, Petronas Chemicals Group Bhd, PPB Group Bhd, Tenaga Nasional Bhd, Public Bank and other banks yesterday, which helped the FTSE Bursa Malaysia KLCI inched up 16 points to 1,537 at close.

Aberdeen Standard Investments (M) Sdn Bhd country head Gerald Ambrose also seconded the view that growth-thematic stocks are expected to see some positive activities, with technology and e-commerce counters to be favourable.

“The market is in the mood to buy growth stocks as with interest rates so low, they are not getting much from bank fixed deposits, about 3%, considering the inflation. The economic growth is also going to be negative for the year, and earnings per share’s growth will be negative as well.

“This environment makes people reach out for stocks which will continue to see growth.

“These are mainly the electronic manufacturers, the stocks that are exposed to online shopping and online transaction growth, as well as those who are benefitted from people staying at home,” he told TMR.

He added that the bank’s dividend payments appear to be under stress from possible need to make provisions for loans going bad due partly to the economic impact of the Covid-19.

“The attraction of dividend-paying stocks is that the better quality ones yield more than bonds. Unfortunately, the banks’ dividend payments have been compromised by all the provisioning against bad loans which may come from the Movement Control Order fallout,” he said.