Wednesday, July 09, 2008

Lucky No: 0980 by Research House #2

CLSA Asia-Pacific Markets has cut its year-end target for the Kuala Lumpur Composite Index (KLCI) by 15 per cent to 980 points, believed to be the lowest estimate in the market.

The foreign research house also downgraded its rating on the Malaysian market to "underweight" from "neutral". It cited political uncertanities, inflationary pressures and an economic slowdown as major drags on market sentiment in the medium term.

"Investors have always viewed Malaysia as a politically stable country and a defensive market.

"However, the current political bickering portrays a negative perception to foreigners that will cause further de-rating," CLSA said in its report on strategy outlook yesterday.

In March, it had a year-end target of 1,150 points. The KLCI closed at 1,127.26 points yesterday.

Some research firms recently cut their year-end targets as well, but none had set them below 1,000 points. TA Securities cut its target by 200 points to 1,210 last month, while RHB Research slashed 257 points to 1,128 last week.

CLSA said it lowered its earnings forecasts and target prices for selected stocks to reflect a higher earnings risk. Its top "sell" calls include AMMB, Bursa Malaysia and SP Setia. "Banks, construction, property and consumer-related companies are the worst hit by rising operation and material costs, weaker sales and higher default rates.

"Independent power producers will be hit severely by the windfall tax," it said. It recommended buying gaming, telecommunications and plantation stocks since the former two have relatively defensive earnings.

CLSA also expects high crude palm oil prices to sustain plantation companies' earnings growth. Its top "buys" are DiGi, Kuala Lumpur Kepong and Resorts World.

CLSA said that while Malaysia's move to cut fuel subsidies will lead to short-term pain from higher inflation, in the long term, it will enhance productivity and energy efficiency.

It expects Malaysia's economic growth to slow to 3.3 per cent in 2009 from 5.3 per cent this year.

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