DECLINE: The ‘uncertainty’ seen market plunging to its single day worst since December 2010, shredding 40.8 points or 2.4 per cent off the board to 1,635.63, implying a 3.7 per cent decline from its all-time high of 1,699.68.
KUCHING: With the FBM KLCI looking to breach the 1,700 mark last week, the Malaysian equity market made a sudden turn on Monday, affirming investors’ fears when rumours over the upcoming election sparks panic selling across the board.
The ‘uncertainty’ seen market plunging to its single day worst since December 2010, shredding 40.8 points or 2.4 per cent off the board to 1,635.63, implying a 3.7 per cent decline from its all-time high of 1,699.68.
Reported by Reuters, the sell-down also took its year-to-date loss to 3.2 per cent, one of Asia’s worst performing markets and sliding near an oversold mark, with the 14-day relative strength index at 31.87, the lowest in the region.
While others fear for the worst, most research houses seen this as an opportunity for investors to take position before the rally starts again.
Kenanga Investment Bank Bhd (Kenanga Research) had reason to believe that the market would be at best trading sideways and that investors should adopt a range-trading investment strategy, which is to ‘buy-on-weakness’ and ‘sell-on-strength’.
It further pointed out that investment choices are still the one with high-dividend yield, especially those with December as its financial year end and about to pay dividends between January and May 2013 as well as those that had consistently delivered positive total returns.
MIDF Investment Bank Bhd (MIDF Research), on the other hand, said the election risk was unduly over-emphasised and it viewed the likeliest of result was that the status quo would remain.
Hence, this would present an opportunity for investors with the risk tolerance and who shared the similar view.
The research firm also expressed confidence that the construction sector would revert to its appropriate valuation after the general election and its current undemanding valuation should be an appropriate proposition for investors.
“While the local market performance may temporarily decouple from the rest of the region, it would soon re-track the broad regional trend direction,” it added.
“Even after the arguably watershed GE12 results, the local benchmark continued to broadly track the regional trend direction.”
Should an unexpected outcome of GE13 transpire, MIDF Research remained sure that the on-going government projects would not be renegotiated, postponed or scrapped off, further believing either party that won the election mandate would honour the sanctity of contract.
However, it pointed out that the negative repercussion or unilateral amendment or, worst still, cancellation of awarded projects would still be tremendous especially from the viewpoint of foreign investors.
“Hence, we do not expect any delay or postponement of the awarded on-going projects.
“We believe that should there be any re-examination at all, it would be confined to future or planned projects only,” it shared.
Based on historical data, TA Securities Holdings Bhd (TA Securities) said investors could not be faulted for turning defensive by selling overvalued blue chips as the FBM KLCI’s 2013 price earnings ratio of 14.6 times was stretched in comparison to other regional players earnings growth.
The single digit consensus earnings growth forecast of 6.5 per cent in calendar year 2013 was also less inspiring, it added.
“Between now and dissolution of parliament, investors should be selling overvalued blue chips with a view to buy them back when the market corrects significantly during the period of a caretaker government in place,” it opined.
Most blue chips, especially from the defensive sectors like consumer and telco, and downstream oil and gas (O&G) companies that pay consistent dividends, are still trading at expensive price earnings multiples and rich valuations, according to its table.
The research firm suggested investors to take a long-term view and buy back battered blue chips premised on the assumption the incumbent party would return to power with a lower majority.
Post-election, it pointed out that the concentration should be on high beta cyclical plays in the construction, O&G and property sectors, which would the driver of domestic economic activities.
Taking into consideration, should the opposition pact suceeded in pulling a surprise victory, TA Securities suggested that it would be wise to throw the gauntlet and stay away from the market until clearer picture emerges on policy matters and on-going mega projects.
However, for those who had missed the boat could still be hopeful for a Chinese New Year (CNY) rally, it added.
Historical trading patterns reflected a higher probability for a post-CNY rally than one before with the benchmark index advancing about 14 times in the last 22 years in two-week and one-month period after CNY with an average gain of 5.5 per cent and six per centm respectively.
Maintaining its year-end FBM KLCI target at 1,710, TA Securities made no changes to its view that the benchmark index would still rebound in the second half of 2013 (2H13) after significant correction in 1H13 on improving external economic climate and clearer political as well as economic direction on the local scene.