KUALA LUMPUR: Standard & Poor’s (S&P) Equity Research expects a more challenging second half year for the Malaysian equity market as much of positive market news has been factored into stock prices, said vice-president and head of Asia equity research, Lorraine Tan.
“The markets have already factored in improvements in corporate activity in 2010, so we expect a more challenging second half.
“At this juncture there is risk to the 2010 corporate earnings outlook, should rising interest rates, tax rates and a weak US dollar continue to dampen US consumption and slow Asia and Malaysia’s export recovery,” she said at a briefing on the S&P’s mid-year equity market outlook.
Tan said key risks in the second half for the region included higher inflation due to a weak US dollar and excess liquidity, and weaker-than-expected global economic recovery.
“The risk of rising Treasury yields and inflationary pressures drives our current preference for the financial and materials sectors and we also see mid-term strength for the energy sector, although the latter has well outperformed other sectors in the recent rally and may be subject to profit-taking,” she added.
However, S&P has raised its end-2009 forecast for the benchmark KL Composite Index to 1,150 points and announced an end-2010 forecast of 1,300 points, in its mid-year market report.
This implied an 8% rise from the June 5 level of 1,069 points in the second half and a potential gain of 13% in 2010, the report said.
S&P economists have also lowered their 2009 gross domestic product (GDP) forecast for Malaysia to around -3.5% to -3.3% year-on-year from -1% previously.
“This estimate is better than the Government’s official projection of the economy to contract by 5% to 4%, on expectation of a quarter-on-quarter improvement in the GDP following greater stability in commodity prices and the benefits of regional stimulus,” Tan said.
S&P’s stock picks for the Malaysian market include SapuraCrest Petroleum Bhd, RHB Capital Bhd, Top Glove Corp Bhd, Lafarge Malayan Cement Bhd, Genting Malaysia Bhd, Tanjong plc and Tenaga Nasional Bhd.
The research house said it continued to prefer stocks of companies “that are either adequately capitalised, have positive cashflows and/or have a low risk of seeing further capital raising exercises.”
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