KUALA LUMPUR: Investors are expected to continue to be cautious in the week ahead as mounting worries about the eurozone crisis weigh on sentiment, while volume will be lower ahead of the Christmas holidays.
Institutional dealers said most of the recent blue chip buying was by local funds as foreign funds wound down their operations ahead of the Christmas and year-end holidays.
“We expect the market to be range bound in the week ahead with dwindling volume for blue chips while trading activity will focus on penny stocks and those with fresh news,” said the head of institutional dealing at a bank-backed brokerage.
The latest negative developments from the eurozone will continue to impact sentiment as rating agencies warn that no quick solution is at hand.
Fitch told eurozone countries it believes a comprehensive solution to their debt crisis is beyond reach, putting six eurozone economies, including Italy, on watch for potential downgrades in the near future.
It reaffirmed France’s top-notch AAA rating but said the outlook is now negative, meaning it could be downgraded within two years.
Moody’s Investors Service cut Belgium’s credit rating by two notches, saying the eurozone debt crisis raises funding risks for countries with high public debt burdens, and said a further downgrade is possible within two years.
Standard & Poor’s had already warned 15 of the currency bloc’s 17 members they are close to a downgrade.
CIMB Equities Research, in its market strategy, said investors need to tread carefully in 2012, which could be a very tough and volatile year for the stock market.
“Besides having to contend with a slowing economy, investors will very likely have to brace for the impact of the 13th general election, amid a multitude of risks.
“We downgrade Malaysia from “overweight” to “neutral” and reduce our end-2012 KLCI target from 1,570 to 1,520 points due to earnings cuts in the November results season. Our target basis remains 12.6 times price-earnings ratio, a 10% discount to the three-year moving average PER,” said the research house.
However, RHB Research was more upbeat, arguing that while global economic uncertainties would likely persist through 2012, there are a number of catalysts for the market.
The research house said it is more positive on commodity prices and the impact on the plantation and oil and gas (O&G) sectors.
“Major initial public offerings [IPOs] in 2012, particularly in the plantation, O&G and healthcare sectors, will continue to draw investor interest, but we also anticipate the possible re-listing of Malakoff [Corp Bhd], Tanjong [plc] and Astro [All Asia Networks plc] later,” it said.
Stocks to watch in the week ahead include Gamuda Bhd, Boustead Holdings Bhd, GD Express Carrier Bhd (GDex), TDM Bhd and Top Glove Corp Bhd.
Gamuda is upbeat about the outlook for the remaining financial year after its earnings climbed 49.5% to RM132.32 million in 1QFY12 ended Oct 31, 2011, from RM88.53 million a year ago due to higher contributions from all divisions.
Gamuda expects a stronger performance this year supported by its ongoing construction projects, continued strong property sales and steady earnings from the water and expressway divisions.
Boustead subsidiary Boustead Naval Shipyard Sdn Bhd has received the letter of award from the Ministry of Defence to supply six patrol vessels with a contract ceiling of RM9 billion.
The Edge weekly reported in its latest issue that GDex is bolstering its position to fight competition. It said the local express delivery provider is drawing up strategic plans on multiple fronts to deal with the increasing competition and gloomy economic outlook for 2012.
The Edge also reported that the rehabilitation of estates is paying off for TDM. It has been an exceptional year for the plantation company as its net profit for the first nine months of FY11 already exceeds that of any full year in the past.
Top Glove’s earnings fell 12.81% to RM31.43 million in the 1QFY12 ended Nov 30, 2011, from RM6.05 million a year ago, impacted by higher raw material prices and oversupply in the industry. However, the world’s largest glovemaker performed better compared with the preceding quarter in terms of revenue and earnings.
Commenting on the results, CIMB Equities Research said Top Glove’s 20.5% quarter-on-quarter rise in net profit, though strong, was expected.
“It came primarily from cost deflation as demand remains weak and industry overcapacity is still an issue. At 23.2% of our forecast and 20.2% of consensus, 1Q results were broadly in line as we expect stronger quarters ahead. We maintain our ‘underperform’ rating and target price, still based on 13.05 times PER,” it said.
This article appeared in The Edge Financial Daily, December 19, 2011.
Institutional dealers said most of the recent blue chip buying was by local funds as foreign funds wound down their operations ahead of the Christmas and year-end holidays.
“We expect the market to be range bound in the week ahead with dwindling volume for blue chips while trading activity will focus on penny stocks and those with fresh news,” said the head of institutional dealing at a bank-backed brokerage.
The latest negative developments from the eurozone will continue to impact sentiment as rating agencies warn that no quick solution is at hand.
Fitch told eurozone countries it believes a comprehensive solution to their debt crisis is beyond reach, putting six eurozone economies, including Italy, on watch for potential downgrades in the near future.
It reaffirmed France’s top-notch AAA rating but said the outlook is now negative, meaning it could be downgraded within two years.
Moody’s Investors Service cut Belgium’s credit rating by two notches, saying the eurozone debt crisis raises funding risks for countries with high public debt burdens, and said a further downgrade is possible within two years.
Standard & Poor’s had already warned 15 of the currency bloc’s 17 members they are close to a downgrade.
CIMB Equities Research, in its market strategy, said investors need to tread carefully in 2012, which could be a very tough and volatile year for the stock market.
“Besides having to contend with a slowing economy, investors will very likely have to brace for the impact of the 13th general election, amid a multitude of risks.
“We downgrade Malaysia from “overweight” to “neutral” and reduce our end-2012 KLCI target from 1,570 to 1,520 points due to earnings cuts in the November results season. Our target basis remains 12.6 times price-earnings ratio, a 10% discount to the three-year moving average PER,” said the research house.
However, RHB Research was more upbeat, arguing that while global economic uncertainties would likely persist through 2012, there are a number of catalysts for the market.
The research house said it is more positive on commodity prices and the impact on the plantation and oil and gas (O&G) sectors.
“Major initial public offerings [IPOs] in 2012, particularly in the plantation, O&G and healthcare sectors, will continue to draw investor interest, but we also anticipate the possible re-listing of Malakoff [Corp Bhd], Tanjong [plc] and Astro [All Asia Networks plc] later,” it said.
Stocks to watch in the week ahead include Gamuda Bhd, Boustead Holdings Bhd, GD Express Carrier Bhd (GDex), TDM Bhd and Top Glove Corp Bhd.
Gamuda is upbeat about the outlook for the remaining financial year after its earnings climbed 49.5% to RM132.32 million in 1QFY12 ended Oct 31, 2011, from RM88.53 million a year ago due to higher contributions from all divisions.
Gamuda expects a stronger performance this year supported by its ongoing construction projects, continued strong property sales and steady earnings from the water and expressway divisions.
Boustead subsidiary Boustead Naval Shipyard Sdn Bhd has received the letter of award from the Ministry of Defence to supply six patrol vessels with a contract ceiling of RM9 billion.
The Edge weekly reported in its latest issue that GDex is bolstering its position to fight competition. It said the local express delivery provider is drawing up strategic plans on multiple fronts to deal with the increasing competition and gloomy economic outlook for 2012.
The Edge also reported that the rehabilitation of estates is paying off for TDM. It has been an exceptional year for the plantation company as its net profit for the first nine months of FY11 already exceeds that of any full year in the past.
Top Glove’s earnings fell 12.81% to RM31.43 million in the 1QFY12 ended Nov 30, 2011, from RM6.05 million a year ago, impacted by higher raw material prices and oversupply in the industry. However, the world’s largest glovemaker performed better compared with the preceding quarter in terms of revenue and earnings.
Commenting on the results, CIMB Equities Research said Top Glove’s 20.5% quarter-on-quarter rise in net profit, though strong, was expected.
“It came primarily from cost deflation as demand remains weak and industry overcapacity is still an issue. At 23.2% of our forecast and 20.2% of consensus, 1Q results were broadly in line as we expect stronger quarters ahead. We maintain our ‘underperform’ rating and target price, still based on 13.05 times PER,” it said.
This article appeared in The Edge Financial Daily, December 19, 2011.
