Wong Ming Tek, executive
director and head of research, HwangDBS Vickers Research Sdn Bhd
1. Do you think 2012 will be a better year for the stock
markets compared with 2011?
Volatility will continue as we
enter 2012 largely driven by the lack of clarity in the fiscal union measures
and sustainable resolutions to eurozone debt crisis as well as US debt deficit
problem. One thing for sure is that should there be any sign of growth from the
developed economies, it will be painfully slow.
That will cause ripple effect
towards the emerging markets and Asia, which could lead to slower exports and
growth. However, it is not all doom and gloom. The good news is, data points
from US and China have been surprisingly resilient of late, and we hope it will
sustain its momentum in 2012.
Back in our home ground, our
guided corporate earnings growth for the full year of 2011 stays at 9% and 13%
in 2012 as the latter rebounds from a lower base the year before. The strength
of earnings in 2012 should provide support to the downside risk in our local
stock market.
2. What are the strategies investors should employ in
their investment decisions?
Investor with a one-year time
horizon, reasonable risk appetite for equities can opt for dividend plays as it
smoothens out the volatility in one's portfolio. Within this space, we would
recommend stocks with strong fundamentals, but are trading at attractive
valuations.
In this case, one can consider
the beneficiaries of the Economic Transformation Programme (ETP) as the effects
filter through and continue to gain traction in the coming quarters. As such,
we are keen on domestic-oriented construction sector such as IJM Corp, Gamuda
and MRCB. For specific dividend stocks, we like Berjaya Sports Toto and
Alliance Financial Group.
Berjaya Sports Toto is favoured
due to:
a) sales for number forecast
operations should remain resilient given the relatively inelastic demand;
b) earnings growth potential
has improved with the launch of 4D Jackpot which should continue to gain
popularity with rising awareness and a young population; and
c) low beta play that offers an
attractive dividend yield.
Alliance Financial Group is one
of our top picks as it is:
a) the cheapest in our bank
universe;
b) building up SME franchise
while leveraging on deposit strength;
c) driving its ROE from
non-interest income; and
d) attractive in terms of
valuations, coupled with strong earnings visibility.
3. What are the challenges expected next year?
a) The Euro & US debt saga
continues
b) A potentially disorderly
break-up of the EU bloc
c) Euro debt crisis morphing
into a EU-US financial crisis
d) General election in
Malaysia, as the outcome could be very binary and this pose risk in the market
e) Black swan events such as
natural disasters or unexpected political turmoil
4. Target for FBM KLCI for
2012.
Our 2012 year-end KLCI target
is 1,590, based on 14x forward earnings. In the near term, the basis of our
computation is due to the coordinated measures by the six global central banks,
which have boosted near-term sentiment. We might also see the occasional market
uptick and Capricorn Effects. Historically, December and January tend to be
good months with average KLCI gains of 2.3% and 1.7% over the last 10 years.
However, there needs to be more structural policy measures in Europe to support
a sustainable market uptrend over 2012.
Vivien Loh, deputy chief
investment officer, Phillip Capital Management Sdn Bhd
1. Do you think 2012 will be a better year for the unit
trust/stock markets compared with 2011?
We think 2012 will be just as
volatile and uncertain as 2011 for global equity markets. In the near term, we
think that volatility for markets will remain high as Europe's politicians are
to come up with workable solutions. The main determinant for global markets to
move higher is whether EU authority is effective enough to address the debt
crisis.
Europe will face a challenging
year in terms of economic performance that will weigh on global growth and,
yes, there will be a slowdown in global and regional growth, but the
performance of Asian equities to date suggests that regional economies are
heading towards a global slowdown or maybe a recession next year!
Regional equities are still
trading way below their 10-year historical averages despite their 6% growth in
2011. We think that towards the first half of 2012, there will be recovery for
our oversold, under-priced and under-owned Asian stocks. As at the domestic
front, Malaysia market may be positive before the next general election.
Malaysia is defensive in bear
markets. A resilient domestic-driven earnings profile, low foreign share
holdings of Malaysian equities and strong participation of government-linked
investment funds in Malaysian equities will cushion the market downside risk.
The US continues to puzzle
investors with sterling growth results, on the back of quantitative easing and
job creation policies. US economy has performed better than most had expected
over the last quarter, showing a growth of 2.2% in 2012, compared with zero
growth in the eurozone. In our view, emerging markets and the United States
should keep the world economy from falling into a recession.
This is based on the assumption
that the eurozone's sovereign debt crisis will not erupt into a new global
economic crisis.
For year 2012, we believe that
equity is an asset class that investors should pay attention to.
The reasons being:
a) Investors have raised their cash level to the highest in a year in December due to the severe uncertainty surrounding 2012. The eurozone crisis was the key concern. Whatever the eurozone's future, the effects of the debt crisis has already been felt across the world.
b) Investors are still putting
their money into low-yielding bonds, a reflection of strong risk aversion.
However, as the divergence between the returns on offer from bonds and equities
becomes wider, equities may be the main beneficiary, especially when many
blue-chip companies pay higher dividend yields than their own corporate bonds.
c) The environment with weak
growth in 2012 may compel the Federal Reserve to launch a third round of
quantitative easing (QE) and this will be positive for riskier assets such as
equities and the European Central Bank may provide cheap liquidity to
strengthen banks.
d) Inflation is still a risk
and it erodes the value of a fixed-rate return and investors will demand a
higher return to compensate for such a risk.
2. What are the strategies investors should employ in
their investment decisions?
We believe 2012 offers a wide
trading range for investors and one has to stay nimble to take advantage of the
market volatility. Any sell-down of the equity markets should continue to provide
opportunity to accumulate stocks with potential and sustainable growth. Then,
they're able to sell on companies that reach their fair valuation.
3. What are the challenges expected next year?
The European debt crisis
remains a potential de-stabilising factor for the global economic and financial
markets. Political risks also cloud the outlook further, with elections and
leadership changes in the most powerful countries and the prospect of
continuing turmoil in the Middle East.
To pick the performing stocks
and right timing to enter into the market are real challenges in year 2012
amidst market volatility arise from the risks mentioned above.
4. Top stock picks of the year and target for FBM KLCI
for 2012.
a) Benalec
b) MBSB
c) Yinson
We believe there are pockets of
opportunities available in Malaysia and the market trend before the next
general election should be on the upside. And we will need to be more selective
in our stock picking. The target level for FBM KLCI is just an indication of
the market trend and is derive from the top 30 stocks in the KLCI Index.
Chris Eng, director of OSK
Research Sdn Bhd
1. Do you think 2012 will be a better year for the unit
trust/stock markets compared with 2011?
Considering the closing KLCI
level of 1518 pts in 2010, and the fluctuations in 2011 since, I believe 2012
will hold similar fortunes. Our 2012 Fair value is 1466 pts which is not too
far away from the KLCI level now. I expect there to be some strengthening of
the KLCI in 2H2012 but it may not be too spectacular.
2. What are the strategies investors should employ in
their investment decisions?
We advise investors to be
generally defensive and to focus on consumer, telco and healthcare sectors. But
watch out for trading opportunities. To buy when the KLCI drops towards the
1300 pts and to sell when the KLCI rises towards the 1500 pts. Investors need
to trade in banking, oil and gas and construction sectors.
3. What are the challenges expected next year?
A recession in Europe,
reduction in Malaysian subsidies after the general election and delays in
ETP-related projects.
4. Top stock picks of the year and target for FBM KLCI
for 2012.
2012 FV is 1466 pts. It's not a
year-end target, which we don't have yet. Top stock picks are Maybank, Axiata,
PetGas, TM, AirAsia, Dialog, KPJ, QL, Media Chinese and TRC Synergy.
Bernard Ching, head, Alliance
Research Sdn Bhd
1. Do you think 2012 will be a better year for the unit
trust/stock markets compared with 2011?
I believe 2012 will be a
challenging year. The external environment does not look pretty at all.
Sovereign debt crisis in the eurozone is far from over despite numerous 'final
solutions' being proposed by European leaders over the past year. It is like a
chronic heart disease.
The European leaders are still
arguing that unhealthy diet (past fiscal indiscipline) was one of the causes
for the disease and demand that a proper dietary (fiscal consolidation) plan be
formulated before a bypass operation (capital injection) can be undertaken. But
the patient (eurozone) may not live long enough!
Obviously, the impact of a
eurozone breakup and/or severe credit crunch would have a far reaching
consequences on emerging economies as the eurozone is a key export market for
the emerging economies.
That said, all is not doom and
gloom. Emerging economies are still fairly resilient as domestic consumption
has been rising over the years while US economy is recovering, albeit slowly.
Malaysia should be able to
partly mitigate any slowdown on the external front by strong domestic
consumption following the government's recent Budget 2012 announcement which
put more money into the hands of the rakyat, especially civil servants.
Meanwhile, implementation of
projects under the Economic Transformation Programme (ETP) should underpin
near-term capital formation. Despite the silver lining, investors are advised
to remain cautious as Malaysian equity valuation is not compelling at the
moment. At current level (1,477.78 as at Dec 19), our best case end-2012
FBMKLCI target is 1600 (based on 15x P/E) which implies only 8.3% upside. But
market is not going to get to that level in a lockstep manner. Instead, we
anticipate wide swing with support at 1,380 (based on 13x P/E).
2. What are the strategies investors should employ in
their investment decisions?
We advocate exposure to
selective sector/stocks as oppose to broad base accumulation. We like defensive
sectors such as telecommunication, consumer staple and retail REIT which have
stable earnings and high dividend yield. Key themes to watch over the next six
months are:
a) further liberalisation of
the financial sector which may be the catalyst for another round of M&A
activities in the banking sector;
b) general election which may
see rotational pre-election play on politically linked stocks such as UEM Land
and MRCB. However, we caution investors of potential increase in volatility as
polling draws nearer due to political uncertainty. Post-election, we expect
Tenaga to be re-rated with better clarity on tariff adjustment and
normalisation of gas supply;
c) ETP implementation which may
see significant uptick in contract wins by construction players like Gamuda,
IJM, and MRCB; and,
d) retail consumption play
riding on Euro 2012 and Dragon year which we believe will benefit brewery
sector the most.
In addition, should the market
hold up (which depend very much on external outlook), we could potentially see
more IPOs such as Felda Global, Gas Malaysia, Malakoff and Astro, and GLC
divestments such as Proton, Affin and Boustead.
The Sun Daily
Business & Investment Opportunities
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