THE KLSE Composite Index (CI) could gain more than 140 points over the next 6-12 months to hit 880, the head of an investment fund said yesterday.
Despite the CI’s double-digit rise over the past three months, the Malaysian market had under performed compared with other regional markets like Thailand and Singapore, making it an attractive proposition for – and one of the primary beneficiaries of – any inflow of foreign funds into emerging markets, Pacific Mutual Fund Bhd chief executive officer Michael Auyeung said.
With the US markets being over-valued, global fund managers were looking for better-value investments in emerging markets, and Malaysia was one of those markets which could provide very good returns, he pointed out.
The CI had appreciated 13% in the three months to July, but had been eclipsed by regional markets like Thailand and South Korea, which shot up by over 30%; and by Singapore, Taiwan and Indonesia, which had risen over 20%.
Auyeung, speaking at an investment dinner talk organised by OCBC Bank (M) Bhd, said a combination of factors – most of them positive – in economic outlook, investor sentiment and market liquidity made the KLSE a very good bet in the coming year. “We are in for a very strong market later this year,” he predicted.
He said the CI could reach the 810 mark based on the fair value of current 2004 estimates. With the improving economy and better corporate numbers, a consequent upgrading of estimates and higher domestic liquidity could push the CI even higher, to 880 by next year.
“Reaching that target is certainly not out of the question,” he said.
Auyeung said the Malaysian economy had recovered well and was strengthening. “The economy has more upside potential than downside risk,” he said. Growth, meanwhile, was likely to be “on track for the next two years, at least.”
Domestic demand derived in part from the government’s RM7.3bil stimulus package in May, as well as an export expansion with a recovery in the US economy, would be some of the drivers of this growth, he said, adding that these would have a major impact on local companies’ earnings – and consequently on share valuations.
He said investor sentiment had also recovered post-Iraq war and SARS, with an increasing number of retail players returning to the market, which was “very cheap” at price/earnings (PE) ratios of less than 14 times when traditional PEs for stocks on the KLSE were between 14 and 22 times.
The growing number of merger and acquisition deals was also spurring interest, he said.
Auyeung said, with the low interest rate regime and the ringgit peg, conditions were ripe for an asset price recovery.
Of the local bond market, Auyeung said current prices were lower than they should be. And, with no inflationary threat, “they would move back up again.”
He said yields of Malaysian bonds were currently very high, and fundamentals good.
“The timing is good,” he said, but warned investors to look to bonds for income generation and not high return prospects, as that could be too risky.