Market Update
- We do not see much good news in the near term and Malaysia appears caught in a downdraft of fear sparked off by global macroeconomic concerns. The risk of more downside is thus likely to be greater than the potential for upside.
- Clearly, losers from the strong ringgit have been among the hardest hit, including resources (plantations, oil & gas and timber), semiconductor, rubber gloves and steel. The GLCs and M&A plays could also slip further if confidence continues to falter.
- If the FBM KLCI falls as expected by RHBRI’s technical research to the next support level of 1,229, i.e. 6% lower than current levels, last seen in Oct 2009, 2010-2011 PERs would fall to 14.0x and 12.2x respectively, from 15.1x and 13.1x currently. We thus see value re-emerging.
- We believe the long-term picture is still intact with sustained economic and corporate earnings growth. We expect the Government to push forward with liberalisation policies and reduction of subsidies later. M&A activities are likely to continue in the industrial space, as well as banks and insurance. In addition, we
expect Malaysian corporates to look overseas for new growth opportunities, and especially given their pricing power have improved with the stronger ringgit.
- Under current volatile market conditions, we highlight that this is an opportunity to pick and choose stocks, especially those that have fallen hard in the last month such as Notion, Daibochi, Evergreen and Unisem.
RHB Equity 360° - 21 May 2010 (Market, O&G, Axiata, Hai-O, CIMB, UMW, Kossan; Technical: AirAsia)
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