Published: 2009/05/26
MALAYSIA'S stock rally that pushed the benchmark index to an eight-month high may falter because shares have become expensive as profits have started to shrink amid a slumping economy, said Maybank Investment Bank Bhd.
“History tells us the bear market isn’t over,” Andrew Lee, an analyst at Maybank Investment said in a report today. The rally has “pushed valuations to the point where growth expectations have reached implausible levels.
A profit recession has just begun.”He expects the key stock index to fall to 990 by year-end. The measure added 0.1 per cent to 1,054.47 as of 11.13 am in Kuala Lumpur.The benchmark Kuala Lumpur Composite Index has surged 20 per cent this year, lifted by market gains in Asia amid optimism the global recession is easing and Prime Minister Datuk Seri Najib Razak’s effort to open up the country’s services and financial industries will bolster economic growth.
The market currently trades at 15.2 times 2009 estimated earnings, up from 12 times earlier this year, Lee said. This is only 10 per cent below the previous cycle’s mid-cycle value, even as corporate profits are expected to shrink 7.7 per cent this year, he said.“Four months ago, the question ‘are we there yet’ could only refer to whether markets had reached the bottom,” Lee said.
“Today, it could equally refer to whether we have reached a top - that is the measure of how confused investors are.”Bear MarketsThe lesson learnt from the previous bear markets is that “we are not out of the woods,” he said.Two previous bear markets, from 1981 to 1985 and 1993 to 1998 lasted 57 and 58 months respectively, he said.
It has now been 17 months from the January 2008 “collapse,” he said.“Those bear markets had 22-38 trend reversals of 5 per cent or more; we have now seen 12 since January 2008,” he said. “These comparisons suggest we are, at best, halfway through this bear market.”
Each of the bear markets witnessed one major rally before continuing its downtrend, said Lee. In the 1981-85 bear market, a rally retraced 64 per cent of its drop before continuing its decline, he said.The present bear-market rally has retraced 32 per cent of its drop, he said. “Be realistic, be selective.” - Bloomberg