KL bourse good for trading in H2: Alliance

Among stocks that Alliance Research favours now include Genting Malaysia, Gamuda, Alam Maritim Resources, Sunrise and IGB Corp

THE stock market is conducive for trading in the second half this year, Alliance Research said, although its 980 points year-end target for the benchmark index suggests that there is further downside.

The Kuala Lumpur Composite Index closed at 1075.77 last Friday.The index had ran ahead of its fundamentals in the recent rally, it said, but investors may find trading opportunity based on newsflow, such as the Budget 2010 announcement, the award of construction contracts, and the potential recovery in cyclical sectors like the oil and gas.

"The index ending lower doesn't mean that there is no fervent trading. The market sentiment could be positive but the index, especially when we move to the new FBM KLCI, would not reflect that," head of Alliance Research Song Meng Hui told reporters after a forum for retail investors in Kuala Lumpur on Saturday.

He said that performance of the new FTSE Bursa Malaysia KLCI (FBM KLCI), which will replace the old index on July 6, may be dragged down by the two heavyweights in the next six months - banking and plantation - which are estimated to have a combined weightage of some 55 per cent of the new benchmark.

"Investors may want to stay out of the banking sector for now. Malaysia is in a technical recession and banks will feel the impact in the second half. The worst for non-performing loans is not over and there may be more earnings downgrades to come in the months ahead," Soh said.

Share prices of plantation companies, meanwhile, are likely to be capped by the potential pullback in crude palm oil prices, Soh said."Crude palm oil (CPO) production is expected to rise in the second half, as it did traditionally, so prices of CPO may retreat. If both banking and plantation sectors are not doing well in the second half, the upside potential of FBM KLCI will be limited.

"Still, he said, investors could watch out for trading opportunities in construction stocks, which will be boosted by jobs from the stimulus plans."Although the earnings are not going to come through, there will be lots of speculation on who's going to get the projects, or the resolution to the water sector.

You can watch the newsflow, construction is good for trading but definitely not for long-term investment," Soh said.Among stocks that Alliance favours now include gaming group Genting Malaysia, construction firm Gamuda, oil and gas company Alam Maritim Resources, and property stocks Sunrise and IGB Corp.