KLSE Update 6.00pm 02 April 2009 >>> KLCI crosses 900

KUALA LUMPUR: The 100-stock KL Composite Index crossed the 900 level in late afternoon on April 2 as buying of blue chips and bigger capitalized stocks resumed.

At 3.57pm, the KLCI had risen 16.43 points to 900.61. The gainers were BHIC, up 32 sen to RM3.12, Asiatic added 28 sen to RM4.58, Hume Industries 27 sen to RM2.93. Genting advanced 20 sen to RM3.98 while Bursa and Tenaga rose 20 sen each also to RM5.35 and RM6.30.

CIMB Equities Research said in note that Malaysia looked ripe for a rebound from a technical charting perspective. It upgraded Malaysia from Neutral to Overweight and raised its year-end KLCI target from 1,013 to 1,060 (based on 13.5 times price to earnings) after cutting the discount to the three-year moving average P/E from 15% to 10%.
The research house said economic indicators are expected to turn positive in 4Q09 as most of the monetary and fiscal stimuli are likely to filter through by 3Q09. This should translate into a 2Q09 entry point.

"If we wait for a post-rally window-dressing correction of 10%-15%, the risk reward ratio should move to 90:10, enhancing the odds of a profitable outcome," it said.

CIMB Research said domestically, there are reasons to be more optimistic. Datuk Serii Najib Tun Razak will take over as prime minister shortly and will soon unveil his cabinet. He will also be spelling out his vision for Malaysia and the changes needed for Umno and the National Front coalition to stay relevant.

"Historically, the market performed strongly in the 3-6 months before and after changes in PMs. Given the lacklustre market performance in the run-up to this andover, the post-handover succession effect could be stronger than expected," it said.

It also said foreign selling at tail end. Foreign funds have been persistent net sellers of Malaysian equities over the past 12 months. Based on EPFR, foreign funds sold down close to US$4 billion or 40% of their Malaysian positions over the past year, much higher than the 11-16% net disposals for other markets.

The selling, however, appears to have let up in the last couple of months. Considering the very high cash level held by all funds, a reversal of the trend should give the market a big fillip.

In view of the high base, the research house it expected more earnings downgrades during the 1Q09 results season in May, making it the 5th straight quarter of earnings letdowns and probably taking us to the tail end of downgrades.

In April/May, it said there was also likely to see a downgrade of the GDP growth forecast for 2009 to a sharper contraction. If the negative fundamental news sparks weakness in share rices, investors should use this opportunity to accumulate positions.

"We expect bad news on the economy and earnings to peak in 2Q," it said.