Research houses optimistic on local stock market

PETALING JAYA: The current corporate earnings season so far has yielded more upgrades than downgrades from analysts, and Bank Negara confirmed last week that the country is well on its way out of recession by the year-end.

Put together, this can be a potent concoction to drive up investors’ interest in the stock market.

However, except for a one-day spurt of high volume that accompanied Maxis Bhd’s massive re-listing on Nov 19, market activity in these past weeks can be described as sluggish at best.

It looks as though investors are holding back after pushing the FTSE Bursa Malaysia KL Composite Index (FBM KLCI) 45% higher year-to-date.

If the FBM KLCI ends the year at this level, it would be the index’s biggest annual rise since 1993. The FBM KLCI closed at an 18-month high of 1,280 points on Nov 17.

The index ended at 1,270.88 points yesterday, starting the week down 3.48 points, on total volume of 808 million shares worth RM880mil. It has remained within a tight 20-point range over the past two weeks.

HwangDBS Vickers Research said yesterday the market would probably continue to move sideways in the coming days, taking more strides forward and fewer steps backward.

“Any market pullback will probably be shallow and short, as has been the case since March this year,’’ it said in a report.

The firm remained optimistic the FBM KLCI would continue to plot “higher highs and higher lows” in the coming weeks.

This week will be another busy one on the earnings calendar, with big planters Sime Darby Bhd and IOI Corp Bhd, along with Malaysian Airline System Bhd and MISC Bhd, expected to release their latest quarterly results before the month-end deadline.

So far, OSK Research said in a recent report, the firm’s earnings upgrade/downgrade ratio for companies under its coverage stood at three ups for every one cut. This is the best ratio since at least 2003.

The strong results so far have convinced OSK that the market would continue to move higher over the next five to six months. The firm has raised its 2010 fair value target for the FBM KLCI to 1,345 points.

MIDF Research head Zulkifli Hamzah is also “optimistic” about the stock market, at least for the first half of next year.

Using the upcoming World Cup 2010 football to be staged in Cape Town, South Africa in June, as an analogy, he said 2010 “will be a game of two halves, with good scoring opportunities in the first half.’’

Picking the right team – or right theme – would be the key to winning, Zulkifli said although it would be almost impossible to match this year’s strong returns.

For latest Bursa Malaysia indices, charts and other information click here

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