Sunday, April 20, 2008

M’sian market bottoming out?

KUALA LUMPUR: Foreign research house Citi Investment Research believes that the local market is “bottoming out” and the benchmark Kuala Lumpur Composite Index (KLCI) is now set to hit 1,449 points by year-end.

“Our bottom-up index target suggests a 15% upside. Leading the pack is the banking sector, which accounts for 23% of the index weighting followed by plantations, telcos, utilities and gaming,” it said in a research note yesterday.

“Malaysia is now trading at discounts relative to the region and its historical valuation benchmarks. After a series of de-rating, the market is trading at discounts to its own historical averages. In terms of dividend yield, Malaysia is at a premium to the region,” Citi Research said.

Saying the stock market was highly unlikely to fall much further after the government’s election upset last month, Citi Research pointed out that a lot of the bad news was already priced in.

“The market may not stage a strong rally immediately, but in an illiquid market like Malaysia, we urge investors to start positioning.”

Citi Research said the composition of the KLCI was very domestic-centric, with hardly any sector directly exposed to the outside world.

“The only sector that is directly exposed to the external environment is the plantation sector which accounts for 17% of the KLCI weighting. With our bullish view on the plantation sector, it is highly unlikely that the KLCI will fall much further,” it said.

Citi Research added that utilities and the telco sectors made up a further 16% of the index.

It said imminent catalysts included the upcoming 2009 budget that could stir buying interest as investors expected an expansionary budget to shore consumer confidence.

With cash levels for some local institutions rising to over 20%, Citi Research expected buying activities to pick up.

Citi Research said while the worst may not be over in terms of consensus’ earnings downgrades, few stocks had already fallen ahead. Its EPS growth estimates for 2008 stands at 7.1%.

“By the next reporting season, investors will be looking to 2009’s earnings, which we expect will be a better year. As it is, we expect 11.6% earnings per share (EPS) growth in 2009,” it said.

On sectors to pick, Citi Research said property stocks had fallen ahead of consensus’ downgrades and it saw values emerging from that sector. It upgraded property firms SP Setia Bhd (target price of RM4.90) and UEM World Bhd (RM4.30) to its buy list as well as added KLCC Property Holdings Bhd (RM4.72) to its top buy list.

“We continue to like IOI Corp, KL Kepong and IJM Plantations in the plantation space but are dropping Sime Darby,” it said.

“(The) listing of Telekom Malaysia Bhd’s mobile unit could add more interest in the telco space. We also like DiGi.Com Bhd, which we believe will continue to deliver strong earnings growth and cash flow,” it said.

“Small-mid caps are likely to show strong share price performance over the next three to six months. We reiterate our bullish view on SapuraCrest and TA Enterprise,” Citi Research added.



DO YOU THINK THAT MARKET IS BOTTOM OUT?
IS THIS A TRAP?


KLCI is still trending in rebound stage. Expect it to perform few more correction. Well, What I can see here is that the downtrend wave yet to be finalised. Now Should be Sell on Strength. I
cautions my view at the 115x level which might be re-visit later. Hope it will NOT!

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