Monday, September 06, 2010

Analysts See New High For Bursa Malaysia Index

PETALING JAYA: With four months to go before 2010 ends, a number of brokerages have unveiled their 2011 year-end targets for FTSE Bursa Malaysia KL Composite Index (FBM KLCI).

Quite a few predicted the benchmark index will reach a new high in 2011.

“Theoretically, the FBM KLCI could reach 1,578 to 1,691 by the end of 2011 purely based on our corporate earnings growth forecasts and by applying mid-cycle forward price/earnings (PE) targets of 14 to 15 times,’’ UOB Kay Hian Research said in its report yesterday.

“This assessment explicitly assumes that investors are no longer concerned over global economic and financial systemic risks,’’ it added.

The brokerage preferred to “err on the cautious side” and pegged a tentative target at 1,580 level.

The FBM KLCI reached a record 1,516.22 points on Jan 11, 2008, months before the credit crisis erupted in the United States and wreaked financial havoc across the globe.

As at Thursday, FBM KLCI closed at 1,441 points. The index was up 13.2% for the year. It is the fourth-best performing index in Asia, trailing behind Thailand, Indonesia and Phillipines.

The big markets in Japan and China are down for the year, as well as those in Europe and the United States.

It may seem that investors have ignored “warning signals” coming from developed worlds, which are struggling to revive their ailing economies.

The region’s outperformance “was partly caused by inflows of portfolio funds into emerging markets as investors switched out of developed markets,’’ RHB Research Institute said yesterday.

This, the firm said, was not a sustainable trend. “We continue to believe that the equity market may move into a phase of greater volatility in the months ahead,’’ it said.

Although it foresees a market correction, if it happens, it will not be “sharp given the ample liquidity and sustainable economic and earnings growth’’.

RHB sees a potential for the market to trade up to 1,450 points by the year-end, which is higher than its previous forecast of 1,400 points.

The research house also has the most aggressive 2011 year-end target for the index at 1,640 points – based on an estimated market value of 15 times its one-year forward projected earnings for 2012.

Local listed companies, mainly big banks, churned out a predictably strong earnings in the April-to-June quarter. Banking stocks, led by Malayan Banking Bhd and CIMB Group Holdings Bhd, accounted for a major chunk of the FBM KLCI basket.

With banking stocks’ earnings outlook upgraded at HwangDBS Vickers Research, the firm yesterday raised its current year-end target for the index to 1,500 points from 1,448 points previously.

It sees “intermittent” profit taking on the back of the FBM KLCI 14% climb since May, but believes that the index’s longer-term uptrend is intact.

But the just-ended results season may not have impressed everyone, especially those at CIMB Research and OSK Research.

Save for the banking and gaming stocks, CIMB said the August earnings season was generally below expectation and lacked “excitement”.

Propelled by rising profits at banks and gaming firms, CIMB projected that this year’s corporate profit growth would reach 30%, up from 24% it predicted three months ago.

It said banks and gaming stocks’ rapid profit increases had more than made up for the shortfalls at telecommunications, industrial, as well as oil and gas sectors.

This year’s blistering growth rate will be the fastest in the region. CIMB forecasts the pace will slow down to 13% next year.

Despite the strong recovery in earnings, CIMB kept its year-end target for the FBM KLCI at 1,450 points, and expects the index to go up to 1,520 points in 2011.

Over at OSK, the mood is equally sombre. The research house has revised its 2010 earnings growth forecast to 26% from 22% previously. However, it maintained a year-end target of 1,465 points after ascribing to a lower PE ratio of 15 times versus 16 times previously.

Given the weakening earnings trend across the board, OSK cautioned that the third quarter may see “more downgrades than upgrades’’.

However, this may be a “temporary situation” until the Government rolls out so-called mega projects that will provide the lift in the construction, steel and banking sectors.

Despite its cautious view, OSK’s 2011 year-end target for the FBM KLCI is at 1,580 points.

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