PETALING JAYA: Stocks on Bursa Malaysia ended 2006 on a strong note, with the KL Composite Index finishing at its best level since the 1997 Asian financial crisis.
The benchmark index gained 7.39 points yesterday to 1,096.24, a shade under its recent peak of 1,101 points reached earlier this month.
Plantation stocks led the gains once again, just as they did on many other occasions over the past months on the upswing in crude palm oil (CPO) price.
The rising CPO price was one of the many catalysts that lifted stock prices on the local bourse this year.
Analysts said the KLCI, which lagged behind regional bourses for the most part of 2006, was swept along in the final quarter by record highs on Wall Street as well as markets in Singapore, Indonesia and Hong Kong.
As of yesterday, the KLCI was up 21.8% for 2006, the biggest annual advance in three years. But the local bourse's late start had pinned down the benchmark index's performance against that of its neighbours.
But the tide could turn in Bursa's favour next year, with brokerages like CIMB Securities and Inter Pacific Research expecting the KLCI to outperform the regional markets for the first time in four years.
“Our KLCI target of 1,200 is conservative and there could be upside to it,'' CIMB Securities said in a recent report.
Foreign brokerage house UBS Research Malaysia implied that at 1,300 points, the KLCI would equal its eight-year average price/earnings multiple of 16.4 times based on its profit forecast for 2007.
It is worth noting that the KLCI reached an all-time high of 1,332 points in 1994.
With the stock rally that started in the final few months of 2006 likely to expand at least well into the first quarter of 2007, analysts said key themes that dominated this year's trading would continue to make headlines in 2007.
“Corporate Malaysia is becoming more interesting, underpinned by strong investor interest in niche sectors like plantation and timber. M&A (merger and acquisition) is up sharply, while anticipated operational/financial restructuring are crystallising,'' Nomura Malaysia said in a note to clients earlier this month.
Market players said Bursa's rise since October was largely fuelled by a surge in the inflow of funds from overseas, as foreign investors flocked to the market looking for bargains amid rising equity prices across the region.
The return in investor confidence was attributed to the uncharacteristically active M&A scene, rising corporate earnings and the stronger ringgit.
Big projects to be rolled out under the Ninth Malaysia Plan and the programme for Visit Malaysia Year would have positive multiplier effects on the economy, thus shoring up market sentiment.
But with the interest on market heavyweights and the bigger capitalised stocks in recent months, the valuations of some of the country's top companies may be at a premium.
Already a good number of quality stocks are trading at record levels and some are looking rather pricey.
JF Apex Securities has set its year-end KLCI target at 1,270 points after taking into account the liquidity premium, but said fundamentally, the index would be fairly valued at 1,144 points. (See also Pages 2-3 & 6)
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