Stock market heading for correction level in 2H10

0

KUCHING: RHB Investment Bank Bhd’s (RHB Bank) branch broking division foresees the nation’s stock market meeting the correction level in the three-month period May to July, underpinned by a 13- month bullish trend and a psychological level of 1,300 points.

BREAK TIME: RHB Bank, branch broking foresees the nation’s stock market meeting its correction level in this three-month period.

BREAK TIME: RHB Bank, branch broking foresees the nation’s stock market meeting its correction level in this three-month period.

RHB Bank’s branch broking executive Andrew Yeap said, “In my opinion, the nation’s stock market has already reached its highest level of 1,347 points this year, since stocks rebounded in 2009. The support level, which means the safe level to start investing again will be at 1,250 points.

“In order to make sustainable earnings, do not listen to rumours and judge a stock by looking at its fair value instead of the current stock price. Valuate a company’s stock by looking at its revenue, return on equity (ROE), earnings per share (EPS) as well as net tangible asset (NTA) and make sure all of these are above the 10 per cent mark.

During a market chat session at Kuching Park Hotel yesterday, its branch broking assistant vice president Heddy Humaizi Hussain further explained, “Our nation’s stocks have good prospects of sustainability, albeit the uneven global economic recovery.

“I expect local economic recovery to strengthen, underpinned by government spending from the two economic stimulus packages totalling RM67 million or about 9.5 per cent of gross domestic product (GDP). This is also supported by the turnaround in consumer spending since the second quarter of last year as well as the recruitment of workers by manufacturers for the last nine consecutive months since June 2009.

He highlighted that the federal government would cut its expenditure this year to reduce its budget deficit to 5.6 per cent of GDP, from seven per cent of GDP in 2009. Overall, the economy experienced a stronger-than-expected recovery of 4.5 per cent y-o-y in the fourth quarter last year and the recovery was gaining momentum.

Whilst both the Malaysian economic and corporate earnings recoveries were gaining pace, valuations were also back to normal levels. Heddy added, “A gradual appreciation of the ringgit vis-a-vis the US dollar will be supportive of the market, while normalising interest rates are positive for the banking sector, albeit temporary.”

Notwithstanding that, Heddy expected the new economic model (NEM) and reforms to drive the market over the longer term. The government had embarked on a series of reforms to improve the country’s economic prospects, a new policy approach towards affirmative action which was market friendly, merit based, more transparent and needs based.

“The NEM aims to move the country towards a high-income economy through innovation, knowledge and R&D (research and development) as well as improve efficiency and productivity. Whilst it still lacks details in terms of actual policy changes at this stage, more detailed plans were expected to be launch together with the release of the Tenth Malaysia Plan in June.

“In our view, the implementation of the NEM could revive foreign interest in the local market, although we believe tangible impact can only be felt over the longer term. We do not expect any quick wins here. At the end, consistent implementation will still be crucial, he added.

He continued to say external events and global policy changes could signal market volatility as gradual normalisation of policies around the globe would signal tightening in the near future.

“Our year-end FBM KLCI target remains unchanged at 1,400 or 15 times 2011 earnings. We believe there could be a slight upside for the market to trade up to 1,450 should the recovery in corporate earnings turn up to be stronger-than-expected,” Heddy said.

Looking at the proposed market strategy, then he opined that any significant weakness in the market was an opportunity to accumulate quality stocks for longer-term performance as he believed that a global sovereign credit problem would unlikely unfold and the global recovery was more sustainable than feared.

“Stock picking is the key. The challenge is to look for the Alpha+ stocks, including recovery leaders and quality cyclicals that have a strong leverage to the economic recovery.

Based on all the given factors, RHB Bank pegged a fair value of RM3.27 per share for Alliance Financial Group Bhd and RM8.07 per share for EON Capital Bhd in the banking sector, Allianz Malaysia Bhd at RM6.68 per share for the insurance sector, Tan Chong Motor Holdings Bhd at RM5.26 per share for the motor sector.

Other sectors and player favoured include Wah Seong Corporation Bhd and Dialog Group Bhd for oil and gas sector, IOI corporation Bhd, Kuala Lumpur Kepong Bhd, Sime Darby Bhd and CB Industrial Product Holdings Bhd in the plantation sector.