Analysts: It'll be a good run in the first half

WEALTH CREATION

The Malaysian stock market, which had a strong run this year, will likely to continue performing well in the first half of next year before faltering in the second half as investment risks heighten, analysts said.

OSK Investment Research is optimistic that the key stock index, the FTSE Bursa Malaysia KLCI, will hit a high of 1,345 points in either April or May. It closed at 1,255.66 on December 21.

"We think the market still has more room to grow for the next five months or so, thereafter there could be a retracement in the second half due to rising interest rates in the US and risk that 2010 corporate earnings could be disappointing," Chris Eng, its head of research told Business Times.

His advice to investors is to make money before interest rates in the US start to rise.

"We think profit-taking will take place six months before the interest rates rise in the US," he remarked.

JPMorgan Securities (Malaysia) Sdn Bhd too believes the market will be better in the first half of 2010.

"We expect Malaysia equities to sustain their strong performance in the first half," said Chris Oh, its head of research.

He said the key drivers for this are an expected rebound in economic growth of 5 per cent, the implementation of large-scale infrastructure projects and reform policy that are likely to exceed investors' low expectations, a stronger ringgit and a generally positive view on emerging market equities.

His top three stock picks for next year are Public Bank Bhd, Genting Bhd and Sime Darby Bhd.

RHB Research Institute Sdn Bhd, meanwhile, upped its end-2010 index target to 1,400 from 1,370 before.

This suggests a modest upside of about 11 per cent for next year compared to this year's strong rise of 43.2 per cent (as at December 21).

"This was a strong year because it was the first year of economic recovery. Moving forward, valuations are no longer cheap but neither are they stretched. In situations like this, the market's performance will hinge on the strength of the economic and corporate earnings recovery," its head of research Lim Chee Sing noted.

He expects the 25 index stocks that RHB tracks to post average earnings growth of 15 per cent next year after a 15.7 per cent contraction this year.

He said the market was likely to be more volatile next year and urged investors to stay focused on valuations.

"Stock picking is key, shy away from speculative stocks. Always be grounded by valuations - look to companies with good growth and strong business models and managements," he said.

The sectors he thinks will be "interesting" next year are telcos, power and banks. His top three stock picks are Tenaga Nasional Bhd, Unisem Bhd and Faber Group Bhd.

Meanwhile, stock market regulator Bursa Malaysia Bhd voiced hope that local and global economic recovery would be on the cards for next year but noted that investors still seemed to be cautious. It nevertheless pledged to continue with its liberalisation efforts to attract more interest.

"Sentiment is still cautious and investors continue to stay on the sidelines, waiting for more concrete signals from the bigger economies. Despite the economic scenario, we have remained firm in our direction to liberalise and make the capital market more efficient, with changes such as the Foreign Investment Commitee deregulation and the revamp of the fund raising framework, among others

"Overall, it is our belief that in reforming to become a high performing market, this will bring in bigger investment opportunities that will contribute towards a dynamic Malaysian capital market," its chief executive officer Datuk Yusli Mohamed Yusoff told Business Times via email.

He said Bursa Malaysia would also continue efforts to attract quality listings. In a normal year where there are no adverse market conditions, one can expect to see between 30 and 40 new listings, he said.

On ongoing efforts to improve liquidity and free float, he said he was hopeful of more robust divestment activities by government holdings following a directive made by Prime Minister Datuk Seri Najib Razak.

Yusli said Bursa Malaysia's initiatives next year will revolve around ensuring diversity of products, greater liquidity, enhanced quality and better efficiency.

He hopes there will be more retail participation, which is currently low, in the mid-30s percentile.

"Education and awareness are the key and we'll continue with efforts in that direction. We've also not seen a return of foreign funds to the levels seen before the 2008 election results. I hope that foreign investors will take note of the capital market and the government's efforts to make Malaysia friendly to business and investing, and that we will see foreign funds come back to our shores," he said.