digitaledge Daily Bears prowl stock market amid hazy economic outlook

by **Cals** Thu 03 Sep 2015, 20:26

digitaledge Daily
Bears prowl stock market amid hazy economic outlook

KUALA LUMPUR: The bears seem to have regained strength pulling down share prices in the region for three consecutive days after a short-lived rebound last week.
The concern about China, the world’s second-largest economy, heading to a slower growth track continued to take centre stage in the investing community. China’s official Purchasing Managers’ Index’s drop to 49.7 in August, was seen as evidence of an economic slowdown.
Meanwhile, manufacturing sector growth in the United States slowed to its weakest pace in more than two years which also posed a concern. On the home front, equity strategists started cutting their year-end target for the FBM KLCI following the disappointing corporate results for the financial quarter ended June 30.
Yesterday, the KLCI dropped below the 1,600 level again. The benchmark index shed 19.02 points or 1.2% to 1,590.19 points. Oil prices made a U-turn falling back to below US$50 (RM211) per barrel, dampening the local sentiment further. West Texas Intermediate October crude fell 2.16% to US$44.43 per barrel, while Brent crude declined 1.57% to US$48.78 per barrel.
HLIB Research has cut its year-end target to 1,710 against a forecast of 1,880 previously amid anticipation of a contraction in earnings per share (EPS) for 2015. “Post-reporting season earnings revisions, the 2015 EPS is now expected to contract by 1.6% (versus a growth of 2.6%), the second consecutive year of contraction. However, due to a lower base, the 2016 EPS growth has been revised higher to 8.3%.
“With contraction in the 2015 EPS, as well as lingering external and internal uncertainties, FBM KLCI year-end target has been lowered to 1,710, based on lowered 15 times 2016 earnings,” said HLIB Research.
On the other hand, CIMB Investment Bank Bhd expects the 2015 EPS to fall 1.4% compared with its forecast of 2.6% earlier, and has reduced its year-end target to 1,700 points from 1,800 points. “In view of the earnings cuts, our end-2015 KLCI target has been lowered from 1,800 points to 1,700 points, based on an unchanged 15.5 times price-earning ratio target. We introduce our end-2016 KLCI target of 1,850 times, based on the same target basis. Our preferred sectors remain the construction and utilities sector, and selective smaller-cap stocks,” said CIMB.
TA Securities also revised down its target for the KLCI to 1,710 from 1,810, and downgraded earnings forecasts for 2015 and 2016 by 3.8% and 3.2% respectively. “With the revisions, we now expect 2015 earnings to grow by only 2% year-on-year (y-o-y). The 2016 earnings are projected to grow by 12.3% y-o-y, mostly on the assumption that the economic cycle and commodity prices will gradually recover, benefiting sectors such as banking, oil and gas, and plantation,” said the research house.
Maybank Investment Bank Bhd has a gloomier outlook on the KLCI, cutting its end-2015 target to 1,610 from 1,830, saying that its initial target was unrealistic. The research house also introduced an end-2016 target of 1,750 points, assuming the political environment in Malaysia quietens down as 2015 ends.
“A more defined target for end-2016 would depend on several factors which are still volatile at this juncture. Our base case assumes that political noises will quieten down by this year end,” said Maybank.
Jupiter Securities chief market strategist Benny Lee told the digitaledge DAILY that banking stocks were still leading the decline in the benchmark index. “Banking stocks were leading the decline in the KLCI, as I noticed that Malayan Banking Bhd (Maybank) has fallen a lot. The rebound yesterday (Tuesday) was probably just a technical rebound, as the market is still bearish,” Lee said.
It is noted that Maybank (fundamental: 1.4; valuation: 2.25) led the decline in banking stocks after it fell 35 sen or 4% to close at RM8.42, while RHB Capital Bhd (fundamental: 1.5; valuation: 2.1) and CIMB Group Holdings Bhd (fundamental: 1.05; valuation: 2.25) fell 1.5% and 1.9% respectively.
Lee added that there are no signs of recovery for the local market anytime soon, and expects the index to continue trading below the 1,600 level, with an immediate support level of 1,560 for the week.

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