RHB Equity 360° (Strategy, Banks, Fajarbaru, Hiap Teck; Technical: Sime Darby) - 01/10/2010

Top Story : 4Q2010 Market Outlook And Strategy – Volatility as economic worries persist
Strategy Update
- The impending release of the 2011 Budget, detailed ETP blueprint, award of major infrastructure contracts and Federal land deals, and the Sarawak state elections would likely create news flow and spur investors’ interest on the construction and property sectors.
- Nevertheless, as valuations of the local bourse are no longer cheap, it is susceptible to any adverse developments in the external sector and cause volatility to the market.
- Although we are less sanguine on the near-term outlook, we believe there is still room for the market to trend higher in 2011. This is primarily predicated on the view that the global economic recovery is more sustainable than feared, which in turn implies sustained corporate earnings growth (+12.9% projected for
2011) that will continue to create new shareholders’ value for investors.
- Our end-2011 FBM KLCI target remains unchanged at 1,640, based on 15x mid-cycle 2012 earnings. This, however, will not be without volatility as the global economy enters into a period of slowing growth in an uneven phase of recovery.
- Whilst we acknowledge that the long-term economic picture remains positive for the equity market, the revival of a “double-dip” recession fear can have a disproportionate impact on the market in the foreseeable future. Under such circumstances, it may be timely for investors to do some top slicing on stocks where valuations have become rich in the run-up of the market. This would then provide more room for investors to accumulate fundamentally-robust stocks on weakness.

RHB Equity 360° (Strategy, Banks, Fajarbaru, Hiap Teck; Technical: Sime Darby)-01/10/2010