4Q13 Strategy MIDF introduces KLCI 2014 year-end target of 1,900 points

by **Cals** Mon 07 Oct 2013, 08:27

4Q13 Strategy MIDF introduces KLCI 2014 year-end target of 1,900 points

Business & Markets 2013

Written by Surin Murugiah of theedgemalaysia.com

Monday, 07 October 2013 08:22

KUALA LUMPUR (Oct 7): MIDF Research has introduced its FBM KLCI end 2014 target at 1,900 points and reiterated its end-2013 target at 1,800 points, and said The recent US Fed decision to delay the tapering of its asset purchases elated the market.
In its 4Q13 strategy outlook released Monday, the research house said the prospect of longer and further liquidity refill in the proverbial ‘punchbowl’ help drove equity prices higher.
“But be reminded that there are two sides of the same QE3 taper coin. On one side, the liquidity risk premium associated with the tapering process may have somewhat subsided as liquidity remains awash.
“But on the reverse side, the US Fed is openly admitting that the strengths of the US economic recovery are lagging prior expectations which may not be good for corporate earnings,” it said.
Meanwhile, MIDF Research said it expects Budget 2014 to contain public finance reform(PFR) measures to rationalise government’s expenditures and improve on its revenue collection in a bid to reduce budget deficits to around 3.5-4.0% in 2014 and around 3.0% of GDP by 2015.
It said the fiscal headwinds from PFR would bring forth a moderating effect on the underlying price trend of the local equity market but nonetheless we expect the secular trajectory of equity price trend to remain upward sloping.
MIDF Research said that at 117.38, the 2014 earnings represent a modest 10.1% year-on-year growth over the current year figure.
It said that with such tepid growth level, the above +0.75SD valuation in 2014 can be sustained only with the continued injection of foreign liquidity into the system.
“However, we believe there is a good possibility that the QE3 taper may commence in 1Q14. Hence we introduce our FBM KLCI 2014 year-end target at 1,900 points, which is equivalent to 16.2x of 2014 earnings or +0.74SD above its long-term average (from 2006-present).
“At the same time, we reiterate our FBM KLCI year-end 2013 target of 1,800 points (PER14: 15.34x),” it said.