Strategy RHB upgrades end-2014 KLCI target to 1,940 points

Strategy RHB upgrades end-2014 KLCI target to 1,940 points
Business & Markets 2013
Written by Jeffrey Tan of theedgemalaysia.com
Thursday, 12 December 2013 11:46

KUALA LUMPUR (Dec 12): RHB Investment Bank Bhd has upgraded its end-2014 FBM KLCI target to 1,940 points based on 15.5 times one-year forward earnings, from 1,910 previously, and said the upgrade was largely on account of the upward revision in earnings.

In a note today, the research house said the normalised net earnings per share growth of the FBM KLCI benchmark is projected to improve to 7.0% next year and 10.1% in 2015, from a rise of 4.1% estimated this year.

The research house said it sees several factors working in the country’s favour that are likely to take the market to another level.

RHB IB research analyst Lim Chee Sing said while the US QE debate lingers, it is a question of timing and it would still likely be the single largest factor influencing market movements next year.

“The US QE tapering is still a moving target, which we expect the global re-pricing of risks to continue each time expectations of it materialising resurface,” said Lim.

“Despite the receding stimulus being the key focus next year, there is no real tightening of policies in the US per se and both the European Central Bank (ECB) and Bank of Japan (BOJ) are likely to maintain a very accommodative policy going forward.”

Lim said: “The ECB and BOJ are likely to inject more liquidity into the system, if need be.”

He said under such circumstances, the market reaction to a Fed move would be less violent than in June-August this year.

Meanwhile, Lim said he expects the global economy to experience a more synchronised recovery next year while the Malaysian economy is poised for a cyclical recovery.

“One factor is the implementation of bold reforms to improve public finances and put the economy onto a sustainable growth path,” said Lim.

“At the same time, macro prudential measures have also been implemented to tame property prices and contain the increase in household debt.”

Lim said the country is unlikely to fall into a twin deficit situation next year, given the turnaround in exports, where the current account surplus in the balance of payments has also improved significantly in 3Q this year.

Coupled with the diminishing risk of a sovereign rating downgrade and a cyclical recovery in the economy, he added that these will augur well for the market to trade at a higher level next year.

Under such circumstances, Lim said investors should make use of the current respite to do portfolio rebalancing and prepare for that eventuality.

“Sector-wise, our overweights are oil & gas, construction, banking, plantation, timber, rubber glove, media, utilities, aviation and non-bank financials,” he said.

“While more values could be found in the mid to smaller-cap stocks, investors should not ignore bigger-cap stocks with sound fundamentals and accumulate them on weakness.”