Market outlook for 2013, choppy H1 likely for equity

Analysts say the market outlook will likely improve in the second half of next year, given improving global economic conditions as investors shift focus to fundamentals after the general election.


By RHB Research

WE continue to anticipate a choppy few months for the equity market in the first half of 2013, given the uncertain election outcome on the home front as well as uncertainties from the imminent challenge of the US fiscal cliff and the eurozone's long-running debt problems.

The market outlook will, however, likely improve in the second half, given improving global economic conditions as investors shift focus to fundamentals after the general election.

As it stands, risks of Greece exiting the 17-nation eurozone and a full-blown disintegration of the region are dissipating while positive indicators are emerging from the United States and China.

Meanwhile, the Malaysian economy turned up to be stronger than envisaged this year and prospects are for a slightly stronger gross domestic product growth of 5.4% in 2013, underpinned by the implementation of the various economic programmes and sustained robust domestic demand.

We project net earnings per share growth for the benchmark FTSE Bursa Malaysia KL Composite Index (FBM KLCI) to improve from 5.4% in 2012 to 7.2% in 2013, which will continue to create new shareholder value for investors.

This, coupled with prolonged low interest rates and ample liquidity in the system, is supportive of higher asset prices.

Assuming that Barisan Nasional will remain in control of the Government and global situations stabilise in three to six months and the global economic recovery is intact, our end-2013 FBM KLCI target remains unchanged at 1,815 points, close to 15 times 2014 earnings.

In our view, equity still stands up against low-yielding alternative asset classes, given the prolonged low interest rate environment, set by the United States, and as long as the global economic recovery is not derailed.

While our core strategy remains defensive, particularly for the first half of 2013, we believe investors would still need to accumulate fundamentally-robust stocks on weakness to outperform the market.

Sector-wise, our key overweights are banking and telecommunications, although we also have an overweight stance on the utilities and healthcare sectors.

In our view, banks are the safest bets on account of low earnings risk, cheaper valuations and with decent dividend yields while telcos remain defensive and are preferred relative to consumer stocks on valuations and liquidity grounds.

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