Bursa Malaysia Outlook 2009
For any investor on Bursa Malaysia now, this must be the million dollar question:
Has the market bottomed out?
I’ve just read a pretty good report by CIMB Research. Can’t say that I agree with everything they said but there are some good observations.
The report looks at the six major bear markets that Malaysia experienced in the past 30 years. The observation is that each bear market lasted 15-17 months on average (from peak to trough).
As you can see, the average decline from peak is 53%. Using this figure, CIMB derives a floor of 707 points for the KLCI. Based on the average period, it says the market may bottom out around May-Jun 2009.
Positive Political landscape
Deputy PM Najib Razak is set to take over as Prime Minister around Mar-Apr 2009. According to the report, investors typically give new leaders the benefit of the doubt and this time should not be different. In the 6-7 months before Dato Seri Abdullah Badawi took over from Tun Dr Mahathir in Oct 03, the KLCI rallied 29%. Three months after the handover, the Malaysian market went up another 13%.
Weak Corporate Earnings
The recent quarterly results in 2008 have been generally poor and this is expected to continue for at least another 1-2 quarters. Malaysia is a net oil exporter and the world’s largest exporter of Crude Palm Oil. The recent plunge in these commodities will filter through into lower earnings. Many brokers have downgrades across the board especially for sectors such as plantation, construction and property.
The flip side is that lower petrol prices will reduce operating costs for businesses. Here’s a good illustration of our petrol prices over the last 8 years.
Source: CIMB Research
Price fall for coal and steel will also mean lower energy cost and raw material costs for industries such as construction and property. We are now in for a period of stable prices and low inflation and hence stable interest rates. This may be the slowdown Malaysia needed so it’s really a blessing in disguise.
Foreign Shareholding
According to CIMB Research, foreign shareholding in Malaysia is still relatively high at 21% which is 5-6% higher compared with the previous trough.
Foreign shareholdings in some heavyweights remain high and there is a risk of further sell down. In Jan-Sep 2008, portfolio outflows amounted to RM41 billion. In 1997 to 1999, portfolio outflows totalled RM71 billion. According to CIMB Research, similar outflows would wipe out a further 10% of market capitalisation.
Corporate Strength
Except for the utility and infrastructure companies, net borrowings in top Bursa Malaysia companies are low. Malaysian banks are looking strong. However among the small to mid-size listed companies, quite a number that have a Net Gearing ratio of more than 100% (i.e. Net Borrowings more than Shareholders Funds).
Individual Wealth
Unlike the bull markets of the mid-1990s, individual investors now have low exposure to the stock market. Wealth lost in the stockmarket collapse in 2008 is much less than in 1997-98. Property prices continue to hold firm although transaction volumes are much lower.
According to CIMB Research, total household debt is now higher at 67% of GDP as at end 2007. My guess is that these days, people are borrowing more to buy more expensive houses and cars because they have more disposable income. A low interest rate environment helps to keep this sustainable.
As I am writing this article I am in Kuching, Sarawak and the economy has never looked better. Although there is talk of job losses (such as Western Digital retrenching 1,500 workers), the economy in Sarawak has been riding on years of growth and favourable conditions. So a lot of wealth has been created. Furthermore Sarawakians are a conservative lot, many are cashed up and misers when it comes to spending.
But I believe Sarawak is changing fast. The younger generation are starting to spend more and the consumer profile is changing. Good restaurants continue to mushroom and many are well patronized despite charging KL prices. I attended banquet dinners and each time the restaurants were unbelievably packed.
If there is anything that epitomizes the modern consumer, it is the modern shopping centre. Go to The Spring in Kuching and you will feel like you are shopping in Mid Valley, 1Utama etc. You have the convenience of everything under one roof, brands that look familiar – Parkson, Giordano, Starbucks, HSL, MPH, FOS, Padini, Vincci etc etc. Truly, Sarawak is playing its catch up game seriously! And I really should mention some of the cars I saw – Aston Martin Vantage, Ferrari 360 Modena and a ton of other latest model Mercedes and BMWs. OK enough rambling … basically Kuching is in great shape going into the slowdown and should do more than its fair share for the Malaysian economy.
There should be some good opportunities to accumulate stocks in the coming months. Some companies with conservative balance sheets and solid market positions are trading at low PE multiples. Rather than being too defensive in your Portfolio, maybe it’s time to identify companies that are reasonably priced and can take advantage of the coming downturn to build their business further.
January 2nd, 2009 at 6:16 pm
yeah it would be a possible bear trend, the other day I forced a friend of mine to read a book published from taiwan (i dunno mandarin) and to explain what it said.
the professor who wrote that is very famous in taiwan who is good it forecasting the market. seems like he forecasted that 1Q2009 will be bearish..
January 3rd, 2009 at 4:06 pm
thanks for dropping by my blog. As an finance intern student, i tink your site will be of some use to me very soon^^
January 4th, 2009 at 10:32 pm
Hi Larry
Thanks ever so much for the reply – yes I did discover the same and managed to get the graphs. I also accessed the horizon.my website and obtained the graphs from there.
Actually I wish you had posted thi 2 weeks back – as I was then completing my assignment – Has the 2007-2008 financial crisis impacted malaysian banking stocks – it would have been of great help to me. While there are so many articles, opinions etc most of it is still parroting what’s already been reported by others. This article of yours was different in the sense that CIMB research did do their own research and graphs.
Nvm – I will always be looking at your website for my future assignments
BTW I am pursuing my MSc(Banking)
Any articles on the latest proposed amendments to Basel II ?? Same will be appreciated
Thanks & happy New Year
vinod
January 4th, 2009 at 10:43 pm
Hi Vinod
I did write 2 articles recently on the Malaysia Banking sector. One is a general overview here:
http://www.horizon.my/2008/11/malaysian-banks/
The other is on AMMB and Hong Leong Bank just after their recent quarterly results here:
http://www.horizon.my/2008/11/banking-profits-ambank-versus-hong-leong-bank/
I do believe that the banking sector will be affected in the slowdown with slightly higher NPLs and slower loan growth. But overall it will still be robust. Good banks like AMMB and CIMB will continue to take retail market share from weaker players. Then PBBank and HLbank will have lower NPLs relative to the rest coz they are more careful usually.
Happy New Year
January 5th, 2009 at 2:43 pm
Sounds plausible, but there had been many wrong predictions last year. So seriously, it’s a gamble to invest now. But I am doing it
January 6th, 2009 at 11:56 am
Hi Larry
How come the damn market ( KLCI) can move up when all u read about is gloom gloom and more gloom
Have heard that many factories are on 4 days now coz of lower orders
SO back to my Q?? How come the KLCI is up – don’t the investors here know about the “dreaded recession / stagflation” Or is it coz of a New Year euphoria??
Hope you can give some explanation – coz it just astounds me – fundamentals not changed, industries are tightening up their belts, analysts have so much to say about the BEAR market— but where did the bull appear in the KLCI??
Hey – Happy New Year and keep writing those articles bro
Vinod
January 6th, 2009 at 12:18 pm
Khengsiong – agree it’s a gamble to invest now and I’m doing in too
Predictions will just be what they are – predictions! I think I myself scored around 4/10 in my “predictions” last year haha!
Vinod – don’t be fooled by the bear market rally. Take a closer look and you will see that it is a narrow rally lead by IOI Corp (and other palm oil stocks), which I believe is on a long term downtrend from its RM9 high few months back. I guess people still have a love affair with this stock and feel it’s cheap but in fact its earnings in the near future are unlikely to go anywhere near its heyday. If you look at it rationally, its free cash flow of less than RM1 billion cannot justify its RM30 billion market cap unless CPO goes to 5000 per ton. Other stocks that have powered ahead are selected bank stocks such as Bumiputra Commerce and AMMB, but these have been hard hit in the October 2008 sell down coz of their foreign shareholding. I believe the market now realize that these are solid companies and we are seeing strong buying support. In contrast Maybank hasn’t really moved and will be dogged by its Indonesian acquisition for a long time. Public Bank hasn’t really moved too coz it’s fully valued. Note also that market volume is not fantastic yet so to conclude we are in a long term uptrend is risky! To me it looks like a start of an earnings downgrade cycle which will deepen first. I just got news that Dubai’s Meydan LLC has axed the racehorse construction deal with WCT Engineering, this is only the start so make sure you avoid construction stocks with exposure to middle east. But having said all this the market is always ahead of the reality – at some point it will move ahead for real. I’m still researching on some forward indicators that will be a more reliable guide, will keep you posted for sure
January 9th, 2009 at 11:26 pm
Hi Larry,
Good job on your website, i somehow stumbled into it as i was researching some info on atrium reit. I’m curious to know why analyst prefer Axis Reit compare to Atrium Reit although from your article Atrium Reit seems to be quite solid too. Any comment?
thanks
January 11th, 2009 at 3:43 pm
Thanks mbge7clt. I’ve posted my comments on AXREIT and ATRIUM here: http://www.horizon.my/2008/10/atrium-reit-high-yield/
(go to the bottom of the article)
January 18th, 2009 at 1:13 pm
i have a thining that the mkt will be better 2nd half as well. but lets wait and see
January 30th, 2009 at 3:43 pm
I don’t know which stocks to buy at this at this time as you see the economy is very bad in US.You see the malaysia stocks market is not badly hit.Mayi know is true,can somebody answer me.Thank you.
January 30th, 2009 at 4:02 pm
Hi Teo, it really does depend on your risk appetite. Most analysts have a downside bias for Bursa Malaysia now, i think the palm oil stocks still have some downside and could drag down the market. I’d be happy to go with defensive stocks which can maintain earnings and dividends, eg Petronas Dagangan.