KUALA LUMPUR: Investors could stay cautious in the week ahead, as reflected in the lacklustre volume over the past week while on Wall Street, the Dow and S&P 500 closed out their sixth week of losses on Friday, June 10.
Further signs of a global economic slowdown set the stage for more losses ahead, Reuters reported.
The deepening gloom raised the prospect for the S&P, which suffered its worst week since August 2010, to break below the year's low of 1,250 next week.
The Nasdaq wiped out its yearly gains on Friday and also posted its biggest weekly decline since August 2010, as the latest deterioration in sentiment came on fear of flagging Chinese growth and fresh worries about Greece's debt crisis.
The Dow closed below 12,000 for the first time since mid-March.
Analysts said the end of June would demarcate the end of the US Federal Reserve’s second round of quantitative easing, known as QE2.
The US central bank bought US$600 billion in government bonds since November. That has pumped liquidity into financial markets, helping to drive up stock prices and, some argue, commodity prices as well, according to Reuters.
China is also due to announce its producer price index and inflation report for May. Also in the pipeline would be be the industrial production in May. In April, production rose 13.4% on-year.
The director of OSK Research, Chris Eng said the Malaysian market this week was largely within expectations in that the broader market suffered from lower volume although financial stocks such as Hong Leong Bank, ALLIANCE FINANCIAL GROUP BHD [] and Aeon Credit Bhd saw a bit of interest.
“Out of the two IPOs, UOA Development Bhd was a bit of a disappointment as we had expected more premium given the size of the company as top property company in Malaysia,” he said.
However, Eng said for the week ahead, he expected the market to creep upwards although the 1,565 resistance was still formidable.
“We continue to promote our Top 10 2H2011 Buys over the longer term as their fundamentals remain intact and newsflow should be positive in a somewhat volatile market. Thus far, out of the Top 10, KPJ HEALTHCARE BHD [], KENCANA PETROLEUM BHD [] and AIRASIA BHD [] have already started to outperform,” he said.
Goldman Sachs Research’s move to raise Malaysia to overweight due to its improving top-down policy and defensive character could shore up sentiment.
The four factors were a favourable macro back group, market composition, clear development policies and earnings growth of 15%.
Goldman Sachs was also positive on the government’s clear and specific policies to spur Malaysia’s development into a high income nation by 2020 through its Economic Transformation Programme (ETP) and Government Transformation Programme (GTP).
“We believe investors are not fully aware of these efforts and that this ‘investible gap’ constitutes an attractive investment opportunity,” it said.
Prime Minister Datuk Seri Najib Razak is scheduled to provide a progress update on the ETP on Monday.
On the home front, CIMB Equities Research said transformation remains the watchword and re-rating catalyst for Malaysia, which is reinventing itself through reforms that kicked off in 2004 with the GLC transformation and widened to the government and economic spheres in 2009.
“This set in motion a re-rating of the market over the past one to two years and will remain the key catalyst for the market in the near term. The monthly announcements of entry point projects have had a positive impact on tourism, CONSTRUCTION [], property, oil & gas and TECHNOLOGY [] companies.
“We should continue to see newsflow on this front for the next six months. Meanwhile, another transformation is quietly taking place in the political arena, which is timely as the general elections must be held by 2Q2013. We continue to overweight Malaysia and maintain our end-2011 FBM KLCI target of 1,700, based on 14.5 times calendar year
2012 price-to-earnings,” said CIMB Research.
Oil and gas and the supporting industries will continue to see trading interest, especially after Petroliam Nasional Bhd revised its five-year capital expenditure from RM250 billion to RM300 billion. The larger capex will benefit the broader sector, with drillers and fabricators being the big winners, CIMB Research said.
“Local companies with drilling rigs are SAPURACREST PETROLEUM BHD, Kencana and UMW HOLDINGS BHD. SapuraCrest’s and Kencana’s collective six tender rigs are typically used in production drilling while UMW’s jack-up rigs Naga 2 and Naga 3 are more suitable for exploration drilling. Kencana is in a unique position because it is also a drilling rig fabricator.
Another stock which could see trading interest on Monday include UNITED U-LI CORPORATION BHD which will resume trading after announcing it was selling its three wholly-owned subsidiaries for RM200 million to Legrand France, SA.
U-Li Corp would sell its entire stakes in United U-LI (M) Sdn Bhd, United U-LI Steel Service Centre Sdn Bhd and Cable-Tray Industries (M) Sdn Bhd. U-Li Corp manufactures cable support systems and light fittings and it reported it posted net profit of RM3.28 million on the back of RM34.44 million in revenue.
Analysts said their break out value for U-Li XCorp indicated it would be worth RM2.12 per share. The RM200 million cash consideration alone works out to RM1.52 per share. Based on 30% discount, they expected U-Li Corp to trade around RM1.50 upon listing. The price will eventually improve when news of cash distribution is firmed up.
Top Glove Corp Bhd will also in focus ahead of the release of its third quarter results for the period ended May 31 on Friday, June 17.
AmResearch is maintaining its Sell rating on the glove maker and cut its fair value from RM4.30 share to RM3.90, based on a price-to-earnings of 15 times CY12F earnings – at parity to the stock’s 10-year mean.
“We understand lacklustre demand for natural rubber (NR) gloves and persistently strong headwinds remained as the main culprits, the same reasons which dragged down earnings in the previous quarters. 9MFY11F net profit would be flattish on a sequential basis, at best,” it said.
Meanwhile, property developer MUTIARA GOODYEAR DEVELOPMENT Bhd plans to undertake a commercial and residential project with gross development value of RM1.2 billion on the prime land it is acquiring from UDA Holdings Bhd.
The 1.4ha (3.6 acre) freehold site near the Sheraton Imperial Hotel along Jalan Sultan Ismail in Kuala Lumpur has been valued at RM215.5 million.
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