3 Possible Election Outcome & Share Market Reaction

* Note: This is NOT a political post. Instead, we're talking about share market movement based on possible election outcome. Abusive comments are strictly prohibited and will be remove automatically.

Local investors have been staying sideline for months ago. Do you started to feel itchy now? Honestly, this is the feeling of mine as an investor, from being active to passive lately. I can't wait to start investing again in share market. However, we shouldn't simply jump in next Monday, right? Let's see the 3 possible election outcome and how market may react accordingly...

OUTCOME #1: BN retained power

Judging by the strong influx of foreign funds flooding local share market prior to election, this is definitely their expected outcome. If materialize, Monday market generally will rally. However, I expect this kind of rally will be short-lived, and turning downward after that. Why? Simply ask yourself these questions: When is the better time to take profit if not that time?

OUTCOME #2: Opposition Alliances won

Many people predicted that market will react negatively to this kind of election outcome. It's not strange. Anyway, once all the worries have settled down, new cabinet was formed, share market will recover. So, an U-shaped rebound is my bet.

OUTCOME #3: Almost 50/50 for Both

This is the worst outcome for share market. A hung parliament does not bode well for the nation. In this situation, very likely, elected assemblyman may jump-ship to another coalition vice versa. So, share market very likely will through months of instability. Dead share market was expected.

Even said so, Bursa Malaysia will definitely still be operating, not as published in one of the advertisement by political party. Hahaha. It's funny to see that kind of advertisement.

TA 2013 Malaysia Outlook: Ride the Volatility

By TA Securities,

We believe 1H13 will be a choppy period and election concerns could drag down the FBM KLCI by 8% to 10% in the period before market rebounds in the 2H13. The impetus for revival will mainly hinge on the end of election overhang and strong domestic demand.

Sustained monetary easing on the back of low inflationary pressure and attempts to reduce budget deficits by cutting subsidies and channeling the savings to productive ventures are positive despite the short-term impact on earnings. Overall, domestic economy will play an integral role in sustaining confidence in domestic equities next year in the absence of any overwhelming micro drivers.

Corporate earnings for 9M12 were less robust and we forecast full year earnings growth for the FBM KLCI to be 9.4% only. Chances of a strong revival in the immediate-term are minimal based on external sentiment and dwindling demand in key export markets. Our earnings growth forecast of 8% and 8.4% for CY13 and CY14 is not compelling vis-a-vis key regional emerging market's 16.1% and 14.7% respectively. It could come under further pressure if the implementation of minimum wages had greater impact in raising the input cost than the intended increase in disposable income and spending. High likelihood of subsidy cuts (electricity tariff and fuel price increases) post 13th General Election would be negative on earnings and will prompt us to trim our CY13 and CY14 forecasts by 1.2% and 4.9% respectively.

How about Foreign Markets?

External factors will continue to dictate the market directions. The structural flaws cannot be undone overnight but expect bouts of positive improvements to kick in the 2H13 as fats are trimmed and jobs created. China could revive its domestic growth without stoking inflationary pressure but it can be destabilizing factor if its row with Japan escalates. The same applies to Iran and the West.

Can KLCI end Strong this year?

We derived our end-2013 target of 1,710 for FBM KLCI after applying 2008-2011 average forward PER of 14.3x on mid-cycle EPF of 120 sen. The underlying key assumption is that BN will return to power with slim majority. This target is a 5% discount to our bottom-up valuation of 1,800.

FBM KLCI performance before and after 2008 Malaysia's election

Strategy...

Sell-on-strength, especially overvalued defensive plays in the Consumer, Healthcare and Telco sectors and turn cash-heavy to accumulate high beta plays in domestic sectors, which are mainly related to Construction, Oil & Gas and Property sectors, in 1H13. Banking sector holds good buys based on their attractive valuation, still robust loan growth and bright chances of benefiting from ongoing domestic expansions.

Source: TA securities report

OSK Strategy and Outlook (Feb 2012)

Global Rally ex Malaysia. While global markets rallied in Jan 2012 to post their best January performance since 1994, Malaysia languished as an exception among all the major markets in East Asia, thus strangely validating our Sell call on the Malaysian market in January. Globally, the economic outlook in the US remained stable with 66% of companies that reported earnings thus far beating estimates. While the situation was different in Europe with the European Financial Stability Fund (EFSF) losing its AAA rating with S&P, nonetheless, the slush of liquidity unveiled by the Long Term Refinancing Operation (LTRO) allowed European markets to rally accordingly as bond yields in Italy declined dramatically.

Takeover spare continues. While December saw the privatization offers for KFC, QSR and YTL Cement as well as rumours of Proton’s stake sale by Khazanah, January saw more of the same including:

1. DRB-Hicom acquiring Khazanah’s 42.7% stake in Proton for RM5.50 a share.
2. Can One acquiring a 32.9% stake in Kian Joo for RM1.65 a share
3. Samling Strategic Corporation’s plans to privatise Lingui and Glenealy at an indicative price of RM1.63 and RM7.50 per share respectively.

Comeback kings. Top Gainers for January were comeback kings which had languished in

2011 but which were either driven by fundamentals (such as JCY) or rumours (such as Maybulk). Sector-wise, Tech (driven by JCY) and Transport (driven by Maybulk and MAS) as well as construction (by Mudajaya and Gamuda) gave the best returns for the month.

OUTLOOK: BETTER TO BE NIMBLY FLEXIBLE THAN DOGMATICALLY WRONG

Right but still… While we were correct in our calls for the market in Jan 2012, calling a SELL on the broad market and choosing “alternative” Buys as our Top 5 Buys for the month, still the market performed better than we had expected while global markets soared despite a patchy month of headlines. While equity markets do tend to outperform in January given the re-balancing of portfolios in a new year, the strength of the market thus far has taken us by surprise.

Be prepared for an upgrade. If indeed the KLCI performs well over the next 15 days inline with a global rally, we would be forced to rethink our bearish view for 1H12. Instead, we may upgrade our call on the market to a NEUTRAL from the current Sell, and may well promote more cyclical sectors such as Oil & Gas and Construction. While the market may subsequently turn south after a 1Q rally, still the flush of liquidity in the system may keep it resilient for most of the year. For now, we remain Defensive with Consumer stocks and other defensive mid-cap plays likely to outperform still in the short term.

Top Buys are Defensives with Good Results expected. 

With February being a results seasons month, we go back to fundamentals to select our Top Buys. Four of our Top 5 “Alternative” Buys outperformed the KLCI in January, namely Sarawak Oil Palms, Supermax, JCY and Old Town. For February, therefore, our selection of Top Buys for the month of February is mainly culled from these expected defensive out-performers, namely:

1. KPJ Healthcare – While results for the 4Q are typically not stellar (doctors tend to go on holidays and patients tend to postpone treatments where possible given the festive season), the excitement surrounding the upcoming listing of Integrated Healthcare Holdings could be enough to spur the share price upwards.
2. Malaysia Building Society (MBSB) – We are expecting a strong set of results for the company for 4Q11 and the recent civil servant pay hike in 2012 should mean management should provide a decent enough outlook going forward.
3. QL Resources – After two quarters of lackluster earnings due to poor fish catch in Sabah, we understand the catch improved in 4Q11. Also, expansion plans in Indonesia and Vietnam are largely on track.
4. Media Chinese – Expecting the best ever quarterly results in 4Q11, we still see many catalysts for ad spending in 2012 including the General Elections, 2012 Olympics and Euro 2012.
5. Padini – Our new Top Buy in the Consumer Retail space, a recent visit confirms that the company has an excellent profit track record, solid management, a good growth story (in the form of value fashion outlet Brands Outlet) and cheap valuations (below 10x forward PER). What’s not to like?

Source: OSK Research

Budget 2012: How Does 1% more EPF Affecting YOU?

During the recent Budget 2012 announcement, one of the controversial issue is the increment of 1% contributed by employers to EPF effective 1st January 2012. This will bring the minimum contribution rate by employers to 13% from 12% currently for those earning less than RM5,000 per month.

The Fatter EPF

While employees are welcoming the new rules, many employers are voicing out their concern on the extra burden being bear by them. "This is not fair to us, especially during current scenario where businesses are bracing for more challenging times ahead", says one of the concerned boss. Although there is some sort of tax-relief for employers who contribute more, bosses are still unsatisfied by the new ruling which adds to their fixed costs.

What is the rationale behind?

The reason is somewhat very good, that is "to equip Malaysians more retirement funds for their golden age" after recent facts shown that Malaysian generally fully utilized their EPF monies between 3-10 years time after retired. This is an alarming issue which prompt government to impose the new ruling.

We work hand-in-hand

However, Finance Malaysia found another good reason behind all this. That is "EPF needs more money". Why?

1. General election is coming very soon
2. We need a feel good factor on Bursa Malaysia
3. External environment resulting in a not so perform KLCI

If we link all the three points together, we can come out a conclusion, which is "Due to the gloomy economic outlook caused by western countries, Bursa Malaysia is in red territories in-line with other countries. Normally, KLCI is also an index which measures the health of Malaysia's economy. In other words, people perceived that our economy is good if KLCI is advancing, which acts as an advantage for the government in the coming general election. And, one of the important supporters was EPF". So, you know why EPF needs more money now?

Then, how does 1% more EPF affecting you?

Less Increment. If raw materials prices eats into profit, bosses will pass the extra costs to end consumers. Does this 1% more EPF consider as extra cost to bosses? Definitely. But, this is called operating costs to employers. So, the natural option for employers is to giving you less increment, thus reducing the effect of 1% more EPF contributions.

Example, you may only get a 9% increment, instead of your deserved 10%. Anyway, you still get the money in this case, but is in your EPF account rather than cash in hand. Good luck, buddies.

Note: This is purely for your own consumption without the intention to provoke any parties.

YTL Power to be privatized? (Oct 2011)

According to The Edge over the weekend, "rumours are swirling that YTL Group has hired local investment bankers to work on a possible corporate exercise that could result in its restructuring".  YTL Power and YTL Land, whereby YTL Corp has a 51.7% and 57.9% stake in respectively, are said to be targets for privatization or share swap exercises to align the group.

Well, if this is true, it definitely will boost the said target companies share prices. Before jumping to the conclusion, let us get the view from professionals. With that, we have a timely article from RHB Research who touched on this matter as below:

"We believe the likelihood of a privatization is low, as its FY12 PE of 12.8x is not much lower than its 5-year average forward PE of 14.7x. Besides, YTL Power's FY12 PE is similar to the 13x PE used for our end-2012 FBM KLCI 1,385 target."

"Also, we believe it will be very costly to privatize YTL Power. While YTL Power could take on more debt to facilitate such a privatization, it would significantly hamper its ability to acquire distressed utility assets in Europe."

"Our calculations indicate that at RM2.21 (assuming a 20% premium to its last traded price of RM1.84), YTL Corp would need RM8.3bn to buy out the remaining 48.3% equity stake held by minorities and assuming full conversion of outstanding warrants. A share swap is more likely as there is not much cash at the holding company, YTL Corp."

Any synergies from consolidating?

"We do not see much synergies in realigning the companies via a share swap exercise if YTL Corp were to consolidate YTL Power and YTL Land into a single entity, since there is little overlap among these businesses."

Investment case...

"We maintain our Market Perform call on YTL Power with an unchanged SOP-derived fair value of RM2.00. YTL Power offers a decent net dividend yield of 5.1% - the key investment thesis for the stock. While news flow will lift short-term sentiment, concerns over expanding WiMAX losses may cap longer-term upside potential".

Source: RHB research report dated 17th Oct 2011

OSK Strategy and Outlook (Oct 2011)

We still feel that there is downside to the KLCI although with non-GLICs supposedly close to maximum cash levels and GLICs supposedly not aggressively supporting the market up till now, further downside maybe somewhat less than our recession market bottom of 1086 points.

OSK: Normalised performance of September’s top stock picks

With Budget 2012 (to be announced on this Friday 7th Oct) around the corner, OSK has no major expectations of the budget except that it will probably be people friendly and include:

1. No further tightening of regulations with regards to the property sector which should be positive for property stocks
2. No hike in Brewery Tax which will be positive for Carlsbergy and Guiness
3. A 4.5 - 6.8% hike in Tobacco excise duties which will be mildly negative for BAT and JTI
4. A likely hike in Civil Servants salary as the last hike was in 2008 which will be positive for MBSB

OSK: Defensive Top 10 Buys

OSK remain defensive for now with expectations of a further drop in the KLCI although they do not see it dropping to our recession bottom of 1086 points. Given the volatile market conditions, it is difficult for us to forecast when the KLCI may fall past the 1300 points level although a break below is possible in October itself. As such, our recommendation is no longer "time-based" but rather "level-based".

For now, with 1300 points still some 6% away from current levels, we remain NEUTRAL on the market with our call still focused on Defensive stocks. A fall below the 1300 level will likely prompt us to upgrade our call on the market to a BUY.

OSK: Top 5 picks for the month of October 2011

With 3 of Top 5 Buys in September outperforming the KLCI and given the significant market uncertainty remaining, OSK keep its Top 5 Buys intact for October. Axiata, Petronas Gas, TM and KPJ are undoubtedly defensive stocks while selling may yet abate on foreign darling AirAsia with profit prospects improving as oil price drops. Aggressive Bottom Fishing is only recommended once the market breaks below 1300 points with names such as Genting, Parkson and Dialog coming to mind then.

Source: OSK Research

RHB: Market Outlook & Strategy 4Q2011

Titled "Perilous Crossroads; Challenging Times Ahead" RHB Research painted a not so rosy 4Q2011 outlook for KLCI. Undeniably, our market are in for a turbulent times and we do not know how the year will be ended. Bear or Bull market?

Below is the excerpt from the said report:

~ The US economic recovery has slowed to a crawl, while Europe is not just lurching from one crisis to another, it is lurching into a new one before the previous one is solved. There is growing risk that sustained weak confidence could exert downward pressure on demand and business activity worldwide.

~ Nevertheless, "double-dip" recession can still be avoided if political leaders get their acts together fast enough to contain the debt crises and avert a contagion given that global trade has not fallen off the cliff.

~ On the home front, we expect the Government to speed up the implementation of the Economic Transformation Programme, which coupled with resilient consumer spending, will provide some cushion to the weak external demand for the country's exports.

~ RHB has revised down our 2012's economic growth projection to 3.6% from 4.5% previously and compared with +4.3% estimated for 2011.

~ With a still cloudy global economic outlook, we believe it is still too early to "bottom fish" at this stage. As global headwinds remain strong and situations could get worse, we will continue to advocate a defensive investment strategy for investors.

~ Under such circumstances, we are of the view that high dividend yielding stocks with reasonably good growth potential would be more resilient and will likely outperform the overall market.

KLCI to continue its downtrend tomorrow? (Feb 24)

Today (Feb 24), FBM KLCI down more than 20 points as it continue it's free-fall after breaking down the crucial psychological 1,500 level. Thanks Libya, thanks Qadaffi for causing uncertainties and panic selling of global markets. In between, Finance Malaysia found a very interesting statistic.

Yes. KLCI beat regional markets for "falling the most" today. Below is the performance of regional markets:

• KLCI fell 1.41% (Champion of the day)
• Hong Kong fell 1.34%
• Japan fell 1.19%
• Singapore fell 0.96%
• South Korea fell 0.60%

KLCI to continue it's downtrend tomorrow?

How about KNM?

Scare so... Based on the chart shown, technically KLCI is heading for its 3rd wave of downtrend since hitting historical high last month. In fact,  Normally, 3rd wave is steeper or faster. Furthermore, it still not yet reach the over-sold position by looking at stochastic. Very soon, KLCI may touch near 1,450 level. Hopefully, it will stop there. Or else, bye bye bye.

Bargain hunting for KNM?

Zooming in further, KNM slumps 14% after reporting a not so promising 4th quarter earnings. Technically, this is not the right time yet to accumulate KNM. It breaks the RM2.68 support today, and the next support only seen at RM2.20. Couple with the extremely high volume recorded today, it would most probably going south tomorrow. Also, over-sold sign just not yet shown on stochastic Just wait.

Good luck

Related posts:

1. KL Mart after 6 consecutive days of dropping
2. Global Food Crisis: A repeat of 2008?
3. Super BIG Xmas gift for KNM

KL Mart after 6 consecutive days of Dropping (27/01/2011)

If you ask any broker or remisier out there, they may show their unity in explaining the 2 weeks down trend of KLCI, by saying "Pre-CNY profit-taking ma". Sounds so familiar every year? Yes. This is a very good excuse for them or even fund managers to explain the sudden down trend, which caught many investors who jumps in the 2011 new year rally just three weeks ago.

Pre-CNY surprise?

When will market rebound?

Today, investors are experiencing a KLCI rebound, be it technically or not, right before CNY next week. Before this, many of us are predicting a "risky" January, given the rich valuation KLCI commanding after 2010 run-up. In December 2010, we are still in a very cautious mode, only to find out that KLCI reaches a fresh one week all-time high right after 2011.

The rally caught investors by surprise, and the great profit-taking too...

KLCI are expected to rebound after yesterday morning staggering 20 points slump, only to recover shortly to close 6 points down. Technically, this shows a "hanging hammer" sign which signals a potential technical rebound soon. (Proofed by today's performance)

Would it still counted as "Pre-CNY" profit-taking?

Finance Malaysia thinks that the market is in an opposite trend comparing to previous years. Normally, the so called profit-taking will kicks-in right before CNY (supposedly today). However, this year is a little bit different. The profit-taking activities came earlier, and investors are going back to the market right before CNY. Would it be a double profit-taking this year? Let's see...

After the current down which ends yesterday, we may look at those stocks which battered down most since 17th Jan high.

RHBRI: Bottom 20 stocks under RHBRI coverage ranked by Absolute performance since 17th January 2011 High

New Listing: Petronas Chemicals Group

After the successful listing of MMHE, Petronas is going ahead with the listing of another subsidiary - Petronas Chemicals Group Bhd (PCG). The IPO, which could raise as much as RM13.02bn (US$4.2bn), would be the largest in Southeast Asia, according to term sheet.

Below is the summary of the IPO:

• PCG is one of the leading integrated petrochemicals producers in Southeast Asia region, with 45% of revenue derived locally.
• Better profit margin in rising crude oil environment as prices of raw material was supplied by Petronas.
• The management has earmarked to 50% payout of its earnings, which translates to a dividend yield of about 4%.

Valuations...

At retail price of RM5.05, the historical price-earnings ratio (PER) works out to be about 16 times.

Upon listing...

• EPF and Kumplan Wang Persaraan will be cornerstone investors.
• To expand its business and synergistic-growth acquisitions for the next 5 years.
• To consolidate its petrochemicals activities to increase the efficiency and profitability of its operations.
• To expand its production capacity via plans to develop a Greenfield ammonia and urea production facility in Sabah

Top 5 KLCI stock?

With market cap of around RM40bn, PCG is set to be among top 5 stocks on KL market. Thus, register as a member of KLCI, right behind CIMB, Maybank, Sime Darby and Public Bank.

Conclusion:

Given the lukewarm respond to MMHE listing, PCG will set to repeat the spectacular debut listing. Undeniably, this is good BUY (if you can get it). However, I do not view this as an trading stocks given its mere 4% retail portion.

Why Malaysian market keeps going up?

Recently, I personally have a chance to met up with some businessman from different industries.

When we chat about business, they said "very competitive la".

When we chat about economy, they said "still very uncertain eh".

When we chat about KL market, they said "why keeps going up ahhhh?".

While newspaper and media are reporting a slew of  news regarding Euro debts problems, US high unemployment, Japanese deflation, and China's scary property bubbles, our market charging ahead unobstructed. In contrast, Ringgit is heading to a fresh 13-year high against USD, KLCI is trying to out-beat its highest ever level, surpassing the pre-crisis level now. Although our economy was not as good as pre-crisis, our KLCI did. Why?

Malaysia to gain from world's liquidity...

Taking a macro-economic view, this is all due to the liquidity that the world governments created to rejuvenate their economies out from the 2008 recession. Actually, we are one of the by-products of too much liquidity that was created. Just take yourself as an example.

Would you invest your money to get a better return compare to fixed deposit now?

What would be your investment then?

The answer is quiet clear-cut, YES, I will invest into share market, mutual funds, or property. Definitely not fixed deposit. Right?

Remember, US and other developed countries with great liquidity are having a near record low interest rate (almost zero). Ultimately, it encourages or forced people to invest and spend, instead of "eating" interest in banks.

Then, they channel their money into those high growth countries/region, the one which came out earliest from recession. 2009 we have Australia, New Zealand, and BRIC (Brazil, Russia, India, China). 2010 we have south-east Asian countries, where Malaysia is one of them together with Indonesia.

It's not purely based on our economy, but, liquidity from other countries.

* Hint: What are the most popular mutual funds in the market now? Then, you will know the answer...

Stock Watch -- Zhulian

Zhulian is one of the leading Direct Selling Companies in Malaysia with more than 80 authorized agencies and approximately 100,000 distributors. Founded in 1989 with initial core business in distributing gold-plated jewellery through Multi-Level Marketing (MLM) channel, Zhulian had since diversified its products lines to home care, f&b, nutritional supplements, personal care, cosmetics, air treatment, water treatment, sleep enhancement products and disposable hygiene products.

Keeps on Growing

After venturing into Thailand and Indonesia market since 1990’s, Zhulian is currently looking to spread its wings to Philippines and Vietnam. In fact, Indonesia market is expected to contribute to its earnings tremendously in the next few years because of huge untapped market. Currently, it’s Thailand and Indonesia operations contribute 46% and 5% of its total sales respectively.

New products

The company would continue to introduce 8-10 new products every year to entice its consumers and help its MLM agents to push sales. Moreover, the future direction is to have more consumables revenue which is recession proof.

Dividends

With a payout of 60%, one could expect get an attractive net dividend yield of 6-7% per year now. And, the company has Rm127mil cash currently.

Undervalue Gem?

Many research houses has a BUYcall on Zhulian, and the target price are ranging between Rm2.30 to Rm2.50, which implies a potential upside of around 20%. With such a stable and low risk counter, couple with decent dividend yield and strong growing market, would you make it your Gem?