Malaysia has not been spared the global stockmarket rout triggered by concerns over a slowdown in US economic growth and S&P’s downgrade of its credit rating. The sharp pullback, though painful, is not dissimilar to the sharp consolidation in Apr/May 2010 when regional stockmarkets gave up 14-27% and the KLCI declined by a hefty 234 points or 15%. We believe that the bullish story for the region and Malaysia is still intact though any recovery is likely to be volatile and uneven. Share price weakness is an opportunity to bottom-fish, albeit gradually as we expect another ugly trading session today on the back of Wall Street’s 6% plunge yesterday. Although we may revise down slightly our end-2011 KLCI target of 1,700 points in view of the disappointing results season so far, we expect to keep our OVERWEIGHT call on the market.
Valuation and recommendation
As more than a year has lapsed since the last precipitous decline in regional markets and the S&P500 has fallen 17% in just 2-3 weeks, it is not surprising that many investors are very skittish. Although we did not fully anticipate the severity of the fall in global stockmarkets, we do not believe that the bullish story for the region and Malaysia is over. The Malaysian market is trading at a mid-cycle 12-month forward P/E of around 14x, well below the P/Es of around 18-19x seen during previous cycle peaks. Its current P/BV of 2.4x is also lower than its peak cycle P/BV of 2.8x. The million-dollar question is whether there will be a double-dip for the US economy. Our economics team still estimates a 30% chance of that occurring. As long as the stockmarket’s travails do not pull down the US economy, which would hammer Asia’s exports to the US, there should be a fair chance of decoupling by Asian markets.
Valuation and recommendation
As more than a year has lapsed since the last precipitous decline in regional markets and the S&P500 has fallen 17% in just 2-3 weeks, it is not surprising that many investors are very skittish. Although we did not fully anticipate the severity of the fall in global stockmarkets, we do not believe that the bullish story for the region and Malaysia is over. The Malaysian market is trading at a mid-cycle 12-month forward P/E of around 14x, well below the P/Es of around 18-19x seen during previous cycle peaks. Its current P/BV of 2.4x is also lower than its peak cycle P/BV of 2.8x. The million-dollar question is whether there will be a double-dip for the US economy. Our economics team still estimates a 30% chance of that occurring. As long as the stockmarket’s travails do not pull down the US economy, which would hammer Asia’s exports to the US, there should be a fair chance of decoupling by Asian markets.
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