Strategy FBM KLCI may be volatile for some weeks to come, says MIDF Research

Strategy FBM KLCI may be volatile for some weeks to come, says MIDF Research
Business & Markets 2013
Written by Surin Murugiah of theedgemalaysia.com
Monday, 02 September 2013 16:02

KUALA LUMPUR (Sept 2): The FBM KLCI may be volatile for some weeks to come as it may take quite a while for the ‘hot money’ investors to unwind their positions, according to MIDF Research.

In a quarterly earnings wrap strategy note Monday, the research house said that the aggregate earnings as reported of the 30 FBM KLCI companies came in at RM15.74 billion in 2QCY13, a jump of 14.1% year-on-year (y-o-y), according to MIDF Research.

It said that adjusted for their respective weights in the benchmark, the 30 FBM KLCI weighted-earnings of RM9.67 billion showed a similar increase of 14.0% y-o-y.

It said that the growth figure was nonetheless boosted by extraordinary items, adding that stripping off these items, the on-year weighted growth figure would actually have risen by a more modest 5.3% y-o-y.

“Overall, 38% of stocks under MIDF Research nniverse coverage reported lower-than-expected earnings. Of the rest, 5% posted earnings that were better than expected versus 57% which came in within expectations.

“We made 10 changes to our stock recommendations with 9 downgrades and 1 upgrade,” it said.

MIDF Research said target price changes involved 26 downward adjustments and 18 upward adjustments.

“We added Glomac, CCM, AirAsia X and Padini to our coverage universe during the review period,” it said.

Meanwhile, MIDF Research said the current market reaction to the prospect of QE3 taper may be unnerving.

Nonetheless, while the QE3 taper may be a drag to risk assets valuation, it also signals better economic outlook particularly in the United States, it said.

“Thus we reckon that as the world’s largest economy is beginning to show signs of a more sustained recovery, it would also provide a fillip to the rest of the world moving forward.
“Hence expect positive secular trend in the equity market to remain intact as the market is “climbing the wall of worry”,” it said.
MIDF Research nonetheless said that during period when the market is climbing the proverbial “wall of worry”, volatility generally rises due to the flare up in tug-of-war between the so-called optimists and pessimists elements in the market.
“It is not going to be a smooth ride as, (a) improving world’s macro conditions (from a recovering US economy) in one hand, may be pitted against (b) higher liquidity risk premium (as a result of the QE3 taper) on the other hand, which will result in a bumpy market.
“Thus the FBM KLCI may be volatile for some weeks to come as it may take quite a while for the ‘hot money’ investors to unwind their positions. Thenceforth, as the ‘hot money’ dust settles, we expect the market to measuredly regain its upward thrust conceivably towards the last quarter of the year,” it said.
The research house said it was hence reiterating its FBM KLCI 2013 year-end target of 1,800 points, equivalent to 16.8x current year earnings or +1.2SD (15.3x next year earnings or +0.3SD) above its 7-year average from 2006-2013.