Alliance: Outlook for FBM KLCI promising

Alliance: Outlook for FBM KLCI promising
Posted on 13 December 2013 - 05:36am
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PETAILING JAYA (Dec13, 2013): The stock market rally, which has seen the FBM KLCI experiencing a good run-up from Dec 31, 2012 to Dec 10, 2013 with a gain of 157.97 points or 9.35%, remains promising for higher level in the coming weeks, and this upward momentum is seen ready to carry the benchmark index to a minimum upside target of 1,890 points in 2014, said Alliance Research Sdn Bhd.

The research firm is estimating end-2014 FBM KLCI of 1,970 points based on mean market price-to-earnings ratio of 15.3 times on 2015 earnings growth of 10.9%.

"In the event investors' sentiment improves significantly due to continued easy monetary policy post quantitative easing (QE) tapering and rotational play back into emerging markets, end-2014 FBM KLCI could potentially rally to 2,130 points," its head of research Bernard Ching said in its Strategy: 2014 Outlook report yesterday.

Ching is of the view that fears over QE tapering may be overdone as he still expects easy monetary policy for a long time, given the slow pace of economic recovery in advanced economies.

"As such, the eventual start of the tapering may in fact lead to dissipating uncertainty and rotational play back into emerging markets.

"Meanwhile, domestic issues may be aplenty due to subsidy rationalisation and fiscal reforms, but earnings growth prospect remains intact," he said.

He believes that 2014 may turn out to be another decent year for the stock market, with a 6.8% capital upside based on the research firm's 1,970 FBM KLCI target although "investors need to be selective in stocks picking".

"The Malaysian economy is expected to remain resilient in 2014, driven by sustained growth in domestic consumption, albeit at slower annual pace as subsidy rationalisation and fiscal reform by the federal government will lower household disposable income while raising cost of doing business," he said.

"Another positive is that the downtrend in Malaysia corporate earnings growth momentum may have run its course as overall FBM KLCI earnings were raised post third-quarter 2013 reporting season although the incident of negative earnings surprises remain high.

"And with improving crude palm oil prices, stabilising credit cost in the banking sector and higher earnings growth in the utilities sector due to (the impending electricity) tariff hike, 2014 earnings are expected to increase by 11.6% compared with 7.8% in 2013," said Ching.

Given expected inflationary pressure from subsidy rationalisation and government's fiscal reform, he prefers stocks such as Tenaga Nasional Bhd and Cahya Mata Sarawak Bhd which will benefit directly or indirectly from subsidy cut.

He also anticipates Visit Malaysia Year 2014 to boost tourist arrivals and spending and expects Malaysia Airports Holdings Bhd (MAHB), Brahim Holdings Bhd and AirAsia Bhd to ride on this theme.

And as the government prioritises its spending, Ching sees SapuraKencana Petroleum Bhd Bhd, Gamuda Bhd and Suria Capital Holdings Bhd benefiting from public sector investments.

He also likes RHB Capital Bhd for its merger and acquisition angle to it as well as export-oriented stocks such as Kossan Rubber Industries Bhd amid weaker domestic consumption in 2014.