KLCI may hit 12-month high by year-end, says CIMB

Corporate earnings will grow a 'stronger' 19 per cent in 2010 after shrinking 5.7 per cent this year, according to CIMB Investment Bank

MALAYSIA'S key stock index may rise to a 12-month high by year-end, says CIMB Investment Bank Bhd (1023), which recommended investors buy "bombed-out cyclical" stocks in construction, building materials and property.

Companies reported better-than-expected earnings in the first quarter, CIMB said in a report yesterday. Earnings will grow a "stronger" 19 per cent in 2010 after shrinking 5.7 per cent this year, it said.

CIMB raised the year-end Kuala Lumpur Composite Index target to 1,220 from 1,060, the highest since June 18. The gauge, up 21 per cent this year, gained 0.2 per cent to 1,063.76 as of 11.53am local time.

"There is a good chance we are past the worst," said Terence Wong, an analyst at CIMB. "The gradual reinvestment of institutional funds' spare cash will sustain the market rebound in the second half" of 2009, it said.

More than RM20 billion of spending on infrastructure will help spur a recovery in the economy with "pump-priming" to intensify in the second half, CIMB said. The government is betting on two stimulus plans totaling RM67 billion to reinvigorate Southeast Asia's third-largest economy as it heads for its first recession in a decade.

The central bank has said previous interest-rate cuts and the stimulus plans will help revive growth in the second quarter."Domestic catalysts" and "huge pools of liquidity not yet deployed by local and foreign funds should keep the medium- term momentum strong, at least" in the second half, it said.

Property stocks including SP Setia Bhd "should outperform" in this market rebound as they tend to move in tandem with the stock market. Further, they were the worst performers last year, CIMB said.

Oil and gas-related stocks will also gain as rising crude oil prices spur more exploration contracts, increasing the demand for service providers such as SapuraCrest Petroleum Bhd, it said.

Malaysian stocks have become cheaper, it added. The "resurgence" of regional markets has lowered Malaysia's price- to-earnings multiple premium over the region from up to 45 per cent earlier in the year to as low as 14 per cent, the report said. - Bloomberg