KUCHING: The new year began with heavy clouds suspended over much of the global economy, but with the prospect of brightening later on as the year progresses.
Industry sources concurred that a politically-driven fiscal crisis in the US and austerity in the eurozone would, as the year started, hold back growth in economies that collectively represented more than US$30 trillion of gross domestic product (GDP) currently.
With most emerging markets ending their weakest year since the 2009 recession, the result was that economic growth in 2013 would be only slightly better than in 2012 and well below the pre-recession period, as projected by most analysts.
“How fundamentally robust are the forecasts and views?” remains the hottest question floating around the market and forums locally.
While everything was on the run, the local bourse performance still showed the ‘GE-bug’ that haunted most investors in Malaysia the past week, would likely remain in correction mode until the GE was over as proven by historical records.
However, many experienced investors pointed out that these ‘uncertainties’ would create cash generating opportunities for the risk-takers, with blue chip stocks and high-dividend yield stocks remaining in the limelight.
Local research firm Kenanga Investment Bank Bhd (Kenanaga Research) further suggested that investment choices were still the ones with December as their financial year end and about to pay dividends between January and May as well as those that had consistently delivered positive total returns.
The research firm had reason to believe that the market would be at best trading sideways and that investors should adopt a ‘spot trading’ investment strategy, which was to ‘buy-on-weakness’ or ‘sell-on-strength’.
What happened last week was a ‘knee-jerk’ reaction towards the 2.4 per cent correction in FBM KLCI on the back of strong rumours of the impending GE.
This was a case of ‘sell first, question later’ as some fund selling activities had triggered a small domino effect within the local funds, Hwang Investment Management Bhd (HwangIM) head of equities Gan Eng Peng said in a fundamentals flash report recently.
“In addition, the lack of government fund participation in the market, which traditionally accounted for 30 per cent to 60 per cent of the market trading activities, meant there was not much support provided,” he added.
HwangIM continued to lighten its local position as it believed the election outcome could be a protected affair. “Even after the election is over, we still think the market will take a few months to digest the results,” Gan opined.
Following the selling pressure in KLCI, recent market speculation was that the dissolution of Parliament would be in March and the polling date would be towards April.
Should an unexpected outcome of GE13 transpire, MIDF Investment Bank Bhd (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 the contracts.
However, it pointed out that the negative reprecussion or unilateral amendment or, worst still, cancellation of awarded projects would still be tremendous especially from the view point of foreign investors.
Taking the view into consideration by TA Securities Holdings Bhd (TA Securities), “should the opposition pact suceed in pulling a surprise victory, it would be wise to throw the gauntlet and stay away from the market until a clearer picture emerges on policy matters and on-going mega projects.”
It suggested investors should take a long-term view and buy back battered blue chips premised on the assumption that the incumbent party would return to power with a lower majority.
On a broader picture, global economic prospects for 2013 going forward are more promising when compared with that in 2012, although the risks of uncertainties and vulnerabilities continue to persist.
“In our view, global growth is likely to expand between 3.8 per cent and 4.1 per cent in 2013 from 3.4 per cent in 2012, while Malaysia’s economic growth is expected to strengthen further in 2013 to 5.8 per cent from 5.3 per cent estimated for 2012 ,” MIDF Research highlighted.
It reasoned that growth was expected to be broader-based in the sense that both domestic demand and exports would play crucial roles.
RHB Research Institute Sdn Bhd (RHB Research) added, whilst 2013 budget might continue to provide a fillip to both the public and private consumption expenditures, what would likely sustain the pick-up in domestic demand was the continued progress in the implementation of the Economic Transformation Programme projects as well as the Economic Corridors.
“Barring any unforeseen circumstances from the external sector, we envisage the economy to expand at a slightly stronger pace of 5.4 per cent in 2013,” it opined.
“We believe after a phase of correction and consolidation, the market will come back once the global economic conditions improve and the local economic recovery begins to trend up,” it added.
Supporting the view, Fitch Ratings Ltd (Fitch Ratings) in its sovereigns report projected Emerging Asia to remain as the fastest-growing global region, with growth of between six per cent and 6.5 per cent a year until 2014.
Even excluding still fast-growing China, the rest of the region was expected to grow five per cent in 2012, picking up to 5.5 per cent in 2013 and six per cent in 2014, outpacing global emerging markets as a whole.
The global rating agency also highlighted the robustness of domestic demand in Malaysia relative to overall GDP, which was particularly striking, as tghe public sector had played an important role in stoking demand,
“Overall, the importance of Asian domestic demand is on the rise. The region’s aggregate current account surplus has fallen to an estimated 2.4 per cent of GDP for 2012, against an average 4.2 per cent a year in 2002-2008,” it stated.
As a whole, Kenanga Research believed that the probability of a full blown ‘fiscal cliff’ happening, a hard landing in China, or a deeper recession in the eurozone or another acute deflation in Japan was relative low.
“The prospect of returning to ‘annus horribilis’ of 2008 seems improbable,” it said.
“Though it may sound grim to those whose livelihood depends on the economy, to a privileged few, it is another investment opportunity of a lifetime, to jump on the bandwagon of another boom and bust cycle,” it concluded.
As the stocks rallied, TA Securities made no changes to its view that the benchmark index would still rebound in the second half of 2013 after significant correction in the first half on improving external economic climate and clearer political as well as economic direction on the local scene.
It maintained its year-end FBM KLCI target at 1,710, while MIDF Research pinpointed it at 1,750, expecting the local bourse to achieve progress and to make steady gains in 2013.
RHB Research, on the other hand, believed that equity still stood up against low-yielding alternative asset classes given the prolonged low interest rate environment, set by the US. It therefore, maintained its year-end FBM KLCI target at 1,815 points, close to 15 times 2014 earnings.