S&P: Good time to pick up Asian blue chips

  • Business
  • Tuesday, 08 Jun 2010

KUALA LUMPUR: A global rout in the equity market over the past one month offers “an opportune time” for investors to pick up Asian blue chip stocks at cheaper prices, said Standard & Poor’s (S&P) Equity Research.

But before you jump into the market, be wary that the short-term trend is expected to remain volatile – at least until the upcoming month-long World Cup 2010 ends in mid-July, according to analysts at the world’s largest producer of independent equity research.

“We are still in a bull market,’’ declared Stephen Biggar, the global director and managing director of S&P Equity Research, who was in town yesterday.

He noted that a well-known summer investment strategy of “sell in May and go away” had certainly panned out this year, but reckoned that equity markets had seen its “four-year cycle low” in March last year.

“We believe the current global sell-off represents an opportune time for long-term investors to add to or initiate emerging market equity exposure,’’ Biggar said.

In the equity market yesterday, key bourses across Asia plummeted amid a fresh sell-off sparked by renewed worries about the debt crisis in Europe and slow recovery in the United States.

News over the weekend that Hungry may faced a Greece-style sovereign debt crisis pummelled the euro against the US dollar and yen.

Japan’s Nikkei 225 was the worst-hit stock index in the region yesterday after it plunged 3.8% to 9,520 points, followed by a 2.8% drop in Australia.

Stocks were down by at least 2% in Hong Kong, Taiwan and Indonesia. Almost all major markets in Asia were in the red yesterday.

At home, the FTSE Bursa Malaysia KL Composite Index fell 8.12 points, or 0.6%, to close at 1,286.27 points, as 24 stocks that made up the 30-counter strong index declined.

“We maintain that buying opportunities exist in Asia, particularly for better managed blue chips especially in sold down cyclical sectors, but risk aversion may continue to favour a near-term defensive stance,’’ said S&P Equity Research’s Singapore-based vice-president Lorraine Tan.

Biggar and Tan were joined by the company’s local analysts at a press conference yesterday to unveil its latest 2010 mid-year market outlook. An open seminar on the market outlook was also held for the benefit of local investors.

Sentiment in Asia is “very externally driven’’ and would probably remain so in the near term as it had been in the past few months, said Alexander Chia, a director at S&P Equity Research, based in Kuala Lumpur.

“I doubt anyone would be holding their breath about the upcoming 10th Malaysia Plan,’’ he said, noting that recent strong positive economic data at home had failed to cheer investors’ already downcast mood.

On the bright side, the ongoing equity market “correction” meant the upside to S&P’s year-end target of 1,400 points for the FBM KLCI had widened, Tan said.

She recommended investors load up on companies with good track records, banks and healthcare providers, particularly glove makers.

A flow of projects in Malaysia should also be positive for construction counters and those dealing in building materials.

Tan said the year-end target was “based on valuation ground’’ as the company projected corporate earnings to grow 20% this year.

However, she conceded that the month-long World Cup would be a “distraction” to the market, although stocks dealing in consumer durables might benefit.

“While we note that headline news is negative and concerns are valid, we maintain our view that a double dip is unlikely to occur in the global economy,’’ Tan said.

A positive for Asia, she said, was that there was less pressure to raise interest rates with inflation looking more benign on sliding energy prices.

Also, Asian fiscal positions are relatively healthy and provide the region with greater flexibility should governments’ spending programmes need to be prolonged.

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