The Star Malaysia - StarBiz

Sta­ble poli­cies:

Up­com­ing GE may have an im­pact on out­look of stock mar­ket in the short term

- By NG BEI SHAN beis­han@thes­tar.com.my

Citibank Bhd in­vest­ment strate­gists David Chua and Haren Shah at the brief­ing on the pos­si­ble sce­nar­ios post gen­eral elec­tion in Kuala Lumpur.

KUALA LUMPUR: Ex­ist­ing poli­cies that have been driv­ing the coun­try’s econ­omy for­ward, deemed the pil­lars of the coun­try’s fun­da­men­tals, would lend sup­port to the Malaysian stock mar­ket post-gen­eral elec­tion (GE), said Citibank Bhd’s in­vest­ment strate­gist.

The bank’s re­search head and in­vest­ment strate­gist David Chua said there would not be ma­jor changes in pol­icy, as the plans that were in place had been driv­ing the coun­try’s econ­omy.

“They (the cur­rent Government) have done a good job in bring­ing in for­eign di­rect in­vest­ment and this is some­thing they do not want to de­rail from.”

How­ever, he ac­knowl­edged that the up­com­ing GE would have an im­pact on the out­look of the stock mar­ket in the short term.

Chua, who of­fered sev­eral sce­nar­ios on the elec­tion out­comes, said the lo­cal bourse might face down­ward pres­sure should the Op­po­si­tion come to power, as in­vestors would be con­cerned about the un­cer­tain­ties that a change in the gov­ern­ing coali­tion en­tailed.

“If that doesn’t hap­pen, then Malaysia will con­tinue to play catchup,” he said, ex­pect­ing the bench­mark FTSE Bursa Malaysia KL Com­pos­ite In­dex (FBM KLCI) to hit 1,720 points by year-end.

The lo­cal eq­uity mar­ket has been lag­ging be­hind neigh­bour­ing coun­tries like Thai­land, In­done­sia and the Philip­pines due to the GE risks.

Chua, fur­ther, does not rule out an­other knee-jerk re­ac­tion to the stock mar­ket when polling re­sults are an­nounced, not un­like what hap­pened on Wed­nes­day in the trad­ing hours lead­ing to the an­nounce­ment on the dis­so­lu­tion of Par­lia­ment.

“Peo­ple will sell down due to sen­ti­ment but the fun­da­men­tals re­main. In­sti­tu­tional funds will en­ter on dips, as they see dis­counts in blue chips,” he said, adding that fun­da­men­tals of Malaysian com­pa­nies were solid based on the dou­ble-digit growth recorded in earn­ings per share.

Other fac­tors that would af­fect the growth of the domestic stock mar­ket in­clude the re­cov­ery of the global econ­omy.

“We are bullish on the Malaysian mar­ket ... we don’t see any volatil­ity in terms of poli­cies, while in­ter­est rates would re­main sta­ble at 3%,” he said.

For­eign in­vestors stayed in­vested when they saw sta­bil­ity and clar­ity, he noted.

He ex­pects the econ­omy to grow by 5.5% to 6% this year and 6% next, while the ring­git could strengthen to three against the US dol­lar by yearend.

He also ex­pects real in­vest­ment growth of 14.1% year-on-year and an in­fla­tion rate of 1.7%.

Chua said while the ra­tio of house­hold debt to gross domestic prod­uct at 80.5% would seem high, pru­den­tial mea­sures in man­ag­ing the bal­ance sheet were im­por­tant.

He com­pared Malaysia’s house­hold debt lev­els to triple-A-rated coun­tries such as Sin­ga­pore and Aus­tralia, where debt was at 74.2% and 110%, re­spec­tively, by not­ing that Malaysia’s debt trend was quite sim­i­lar to Sin­ga­pore’s based on data from 2007.

He pointed out that most of the debt was held lo­cally, re­sult­ing in lower volatil­ity.

Chua be­lieves that the in­vest­ment strat­egy theme would be urbanisati­on, with in­fra­struc­ture build­ing and domestic con­sump­tion among the fac­tors. As such, he favours the con­struc­tion sec­tor, which would ben­e­fit from in­fra­struc­ture build­ing and the on­go­ing Eco­nomic Trans­for­ma­tion Pro­gramme projects.

He also likes the oil and gas sec­tor and ex­pects ex­plo­ration ac­tiv­i­ties to con­tinue, sup­ported by sta­ble crude oil prices.

He sees op­por­tu­ni­ties in the telco sec­tor, based on con­sumer con­sump­tion growth and ro­bust div­i­dend play, while the con­sumer sec­tor would ben­e­fit from domestic con­sump­tion-ori­ented eco­nomic growth.

Chua said val­u­a­tions for some con­sumer stocks would start to look rel­a­tively cheap should they grow at dou­ble-digit com­pounded an­nual growth rates for the next three to five years.

How­ever, he feels that plan­ta­tion stocks were lag­gards due to the cur­rent low prices of crude palm oil.

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