S&P lifts KLCI’s year-end target to 1,150

By Chong Pooi Koon
Published: 2009/06/27

S&P's top property picks are Sunrise, Mah Sing, KSL Holdings and Selangor Properties, and it favours Public Bank, AMMB Holdings and RHB Capital for banks
Standard & Poor's Equity Research has raised its year-end target for the Kuala Lumpur Composite Index to 1,150, saying that a potential economic recovery in the last quarter this year may boost bank's earnings.

Its top picks for banks are Public Bank, AMMB Holdings and RHB Capital.S&P is putting its next year's KLCI target at 1,300, indicating a 21 per cent potential upside. The benchmark index closed at 1075.77 yesterday.

It expects the US economy to return to a 1 per cent expansion in the final quarter as housing prices and home sales bottom out, and has projected a better economic performance in Malaysia than the official estimates. The various stimulus plans by governments in Asia will work to lift economies in the region, S&P head of Asia equity research Lorraine Tan said.

It expects Malaysia's economy to shrink 3.3 to 3.5 per cent this year, better than the government's projection of a 4-5 per cent contraction. "Like in most parts of Asia, the worst in Malaysia's GDP (gross domestic production) has probably been seen in the first quarter.

The second quarter GDP is probably still down from last year, but there will be some pick-up," Tan said at a media briefing in Kuala Lumpur yesterday.Still, the second half could be more challenging for Malaysian stocks, since the market has already priced in a fair bit of corporate activity improvement next year.

"At this juncture, there is risk to the 2010 corporate earnings outlook, should rising interest rates, tax rates and a weak US dollar continue to dampen US consumption and slow Asian and Malaysian export recovery," Tan remarked. S&P has projected Malaysia corporate earnings to grow again next year at 11.7 per cent.

This year, it expects companies to report 13.7 per cent earnings contraction. "We remain positive over the mid-long term on stocks but the short term is subject to further consolidation," she said.Apart from banks, it also likes property stocks, saying that it expects demand to stay firm because the record low mortgage rates are providing more incentives to buy house than to rent.

Malaysia's real estate prices are also among the cheapest in the region, S&P said. Its top property picks are Sunrise, Mah Sing Group, KSL Holdings and Selangor Properties.Investors may find opportunity to pick up shares of energy and materials, like steel and cement, when market dips in the near term, S&P said. However, it remains wary of autos, airlines and shipping stocks.