Not enough evidence to say rally was over (ext: Edge)

Malaysia’s 30-stock bellwether FTSE Bursa Malaysia KLCI eased 8.88 points or 0.76% to 1,155.53 points on declines in banks and planters led by BUMIPUTRA-COMMERCE HOLDINGS [ COMMERZ  10.280  -0.160 (-1.533%) ] Bhd and IOI Corp Bhd.

Still, Vivian Loh Jee Wae, deputy chief investment officer at TA Investment Management Bhd in Kuala Lumpur, said there were places in Asia where valuations may look rich, but there was not enough evidence to say the equities rally was over.

“Technically speaking, Shanghai may have fallen into what some call a bear market intra-day but prior to the correction, Shanghai had appreciated some 160%.

“In that sense, a 20% correction is still healthy. There may still be some weakness (over) the next few days, but for the coming six months to a year, my view is that the upward trend is still intact,” she said.

While it is premature to declare a recovery, she notes that recent economic data releases have been generally positive.
“Some people say Japan’s economy grew below expectations, but Japan is growing again after some time. Singapore’s 2Q GDP was better than expected. The European economy is also showing improvements.

“The US labour market is still weak but there are signs of stabilising (US’ unemployment rate fell in July, the first time since April 2008) which will at some point lead to consumption and in turn recovery. I don’t think it is time to take money out of equities, not yet,” Loh said. “So far earnings releases in Malaysia have not been too bad. Earnings upgrades will justify higher valuations,” she added.

Clare Chin, who heads research at CLSA Securities Malaysia, reckons the “general up-trend” for equities here remain “intact”.

“I don’t see it (Shanghai’s 20% decline) spelling the end of the rally. We (Malaysia) won’t fall 20%, we didn’t rise 160% in the first place. I would see price weakness as opportunities to pick up stocks. We continue to like commodities, oil and gas and PROPERTIES [ PROPERTIES  769.690  -16.040 (-2.041%) ] sector as inflation hedge and banks for recovery,” Chin said.

For Malaysia, she is keeping watch on how the country intends to reduce its budget deficit for 2010, such as measures that will be put in place to reduce its operating expenditure.