DESPITE posting strong gains so far this year, the MSEB Composite Index (CI) may continue to lag its regional counterparts in 2004 in performance unless big-cap stocks start to move, according to market analysts.
The benchmark index rose yesterday to 827.87 points for its highest close since July 2000, which means that with the new year barely a month old, it has already shot up by nearly 4.3%.
Nonetheless, the CI's performance year-to-date still trails behind that of other Asian benchmark indices, excluding Bangkok's SET Composite Index and Japan's Nikkei 225.
“And unless big-caps start to move, the CI will lag the rest of Asia for a second year running,” said Stephen Hagger, Credit Suisse First Boston's (CSFB) Asian equity research director (Malaysia).
Hagger is bullish on Malaysian stocks, but believes most foreign investors are still underweight on Malaysia, although perhaps less so than before.
“Due to a combination of regional underperformance and steady post-crisis earnings growth, the Malaysian market has seen its premium erode and now stacks up relatively well from a regional perspective,'' CSFB said in a report on Malaysian equity titled Getting the Big Stuff Moving.
The report covered potential non-crisis corporate restructuring of government-linked companies (GLCs), which are among the largest firms in terms of market capitalisation.
“We believe that there is plenty of scope for many of them to be restructured, such that they can release value and perform,'' the report said.
Meanwhile, the combined weightage of the 10 largest companies, half of which are GLCs, account for more than 50% of the main index weighting.
“In order to get the CI to move, big stocks need to perform,'' Hagger said.
In its report, CSFB has compiled a “wish list” of the changes that it believes are necessary to get the big stocks moving.
The report described the appointment of Tan Sri Nor Mohamed Yakcop as second finance minister as the most crucial from the stock market's viewpoint.
Mohamed is tasked with implementing key performance indicators (KPI) across GLCs, starting with TNB and Telekom.
“We look forward towards Nor Mohamed who clearly knows the difference between a well-managed company and a badly managed one,'' CSFB said.
Some foreign investors are said to be underweight on Malaysia based on the perception that these index-linked companies are not only expensive but also poorly managed.
“We believe small and mid-cap stocks offer strong outperformance, but we will be looking for changes in management and restructuring among GLCs that could signal a change in their fortunes,'' CSFB said.
On its stock picks, CSFB's large-cap recommendations include Telekom, which it said would initially be driven by earnings revisions but could also benefit from a change in management style.
Another pick is Sime Darby Bhd which, in CSFB's view, looks set to enjoy a period when all major divisions should have positive earnings momentum.
“We believe the two must-own sectors are property and plantations,'' the report said.
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