KUALA LUMPUR: The markets are expected to be volatile in the week ahead, as the news flow from the eurozone continues to swing like a pendulum. On the minds of investors is whether the governments in Europe and the US can resolve the growing debt problems.
Investors are unsure whether the European Central Bank will find a way to act as a lender of last resort in the manner of the US Federal Reserve.
In Malaysia, while the economy grew at a faster pace of 5.8% year-on-year in 3Q from 4.3% in 2Q, there were concerns over the headwinds in 4Q12. RHB Research Institute said it tweaked its real GDP growth estimate for 2011 upwards to 5% from 4.5%.
“However, we are keeping our 2012 forecast unchanged and expect economic growth to weaken to 3.6%, given that the eurozone’s sovereign debt crisis is still lingering and the risk of it worsening remains high, and on the back of a slow US economic growth,” it said.
Affin Investment Bank’s head of retail research Dr Nazri Khan said 3Q GDP results showed the existing financial conditions in the country remain conducive for growth.
“Our view is that the government and Bank Negara Malaysia should continue with the current environment of low interest rates, ensure ample liquidity in the financial markets and easy credit accessibility, to bolster domestic demand,” he said.
Nazri said key support for future GDP growth would definitely be private investment.
“As the projects under the ETP [Economic Transformation Programme] kick off to higher gear, we expect stronger private investment and other side effects, such as bond and equity income growth, to bring more contribution to the economy,” he said.
As for equities, Nazri believes the FBM KLCI is now ripe for a pullback towards a lower range of 1,450 to the 1,430 support level.
“We believe the global equity market will be affected by the widening European debt crisis following disappointing French and Spanish bond auctions and downgrade warnings from ratings agency on the US’ large banks,” he said.
RHB Research, in its market strategy, said the volatile news flow would continue as long as there are no firm and detailed solutions, forestalling the equities market correction it had been anticipating.
“We continue to advise caution,” it said, pointing out that its top picks are companies with stable cash flow and those with above-market dividends.
Its stocks which offered more trading flavour and near-term trends were UEM Land Bhd, Top Glove Corp Bhd and WTK Holdings Bhd.
It said UEM Land is expected to benefit as oil and gas projects in Johor will continue to raise land values and provide catalysts for the share price.
It also favoured Top Glove as lower auto industry demand — due to Thailand’s severe floods — could impact the latex price in the near term.
“We see potential for the stock to move higher, although we recognise its premium valuations relative to its sector peers,” it said.
RHB Research added that WTK would benefit from a rise in timber prices in 2012 as Japan’s post-tsunami construction picks up. It explained that WTK is the purest timber play for Japan and the recent share price pullback saw it trading at relatively inexpensive valuations against the less liquid peers.
Other stocks to watch include IOI Corp Bhd, Masterskill Education Group Bhd, Affin Holdings Bhd and Benalec Holdings Bhd.
IOI’s net profit for 1QFY12 ended Sept 30, 2011, fell 48.2% to RM258.09 million from RM498.13 million a year ago, due mainly to unrealised translation loss on foreign currency denominated borrowings of RM271.7million. The loss was higher than analysts’ estimates.
Masterskill’s net profit for 3QFY11 ended Sept 30 fell 78.8% to RM5.55 million from RM26.18 million a year ago mainly due to lower student enrolment and higher overheads.
Affin reported an improvement in its earnings, which rose 17.5% to RM135.19 million in 3QFY11 ended Sept 30 from RM115.01 million a year ago, boosted by higher writebacks and higher Islamic banking income. It declared an interim dividend of 12 sen per share.
The Edge weekly reported that Benalec’s recent foray into land reclamation at the oil and gas hub in Johor has raised some eyebrows.
If all goes well, the project will boost the total outstanding gross development value of its projects from about RM1.5 billion to over RM15 billion.
This article appeared in The Edge Financial Daily, November 21, 2011.
