RHBRI 4Q12 Market Strategy: Stay Defensive And Buy On Dips To Outperform The Market

Given the persistent headwinds from the external sector and general election overhang on the home front, we are of the view that the market will likely be stuck in a range-bound trading pattern in the 4Q. Consequently, we believe investors would still need to accumulate fundamentally-robust stocks on weakness in order to outperform the market, while staying defensive on the core holdings will provide greater stability to the portfolio performance.

In addition, as the search for yield will likely remain a key driver for both retail and institutional investors in the 4Q, high divided-yielding stocks will also continue to outperform the market, in our view. A list of our top picks is reflected in table below, which includes “buy on weakness” tactical stocks.

Which Sector to look at?

Sector-wise, our key overweights are telecommunications and banking, although we also have an overweight stance on the consumer, utilities, gaming and rubber gloves under the healthcare sector (see table below). We expect the high-yielding telecommunications stocks to remain relatively defensive for equity investors under the current market environment.

The banking sector, on the other hand, carries a 34.7% weighting in the bellwether index and, in our view, cannot be ignored, given the better-than-expected recovery in earnings momentum over the last two consecutive quarters. The year-to-date annualized loan growth stood at 11.9%, ahead of our and the consensus forecasts of 10-11% and 8-9% and the pipeline of corporate deals remains healthy. This suggests that banking earnings could continue to surpass expectations in the quarters ahead, which coupled with decent valuations and dividend yields vis-a-vis the FBM KLCI benchmark, would bode well for share price performance in the 4Q, in our view.

Source: RHBRI research report

RHB 2012 Market Outlook & Strategy: Another Challenging Year Ahead

As we head into 2012, a lot of uncertainty remains. On the external front, the euro-debt crisis remains unresolved despite five major attempts to stabilise it. Meanwhile, the economic conditions in the Eurozone are deteriorating rapidly with major indicators pointing to the region entering a recession. A deeper-than-expected recession in the Eurozone would leave few countries unscathed.

In particular, the US economy, which is still in low gear, will likely be severely impacted, while China may also be in for a more severe downturn as effects of potential policy easing will take time to filter down to the real economy.

Slower Eonomic Growth Envisaged For 2012?

The Malaysian economy will not be spared and will likely experience slowing export growth, though this will be cushioned by resilient domestic demand given the progress in the implementation of the Economic Transformation Programme. We expect the country’s economic growth to slow down more significantly to 3.6% in 2012, from +5.0% estimated for 2011. This points to weaker earnings growth, projected to slow from 10.5% to 7.8% during the same period for the FBM KLCI benchmark (ex-Tenaga).

Domestic Demand Likely Be More Resilient

With slowing economic growth, general election and multiple headwinds from the external sector, we believe investors will be in for another challenging year ahead. Given a number of significant risks in the horizon, our end-2012 FBM KLCI target is set at a conservative level of 1,480, based on unchanged 13x 2013 EPS. We expect a volatile 1H with sentiment gradually improving in the 2H as clarity on the global economy improves and investors begin to look forward to an economic rebound in 2013.

Non-election plays?

For investors looking for stocks that are less sensitive to the outcome of the election, we recommend KLK (one of Malaysia’s largest and independent plantation companies, with effi cient yields that have set the benchmark for the sector), Public Bank (large and defensive bank with a conservative and highly-regarded management), Digi (foreign-owned, well-run and in the broadly stable telecom industry) and Parkson (holding company for Parkson Retail Group listed in Hong Kong and Parkson Retail Asia listed in Singapore, with exposure to resilient retail growth in China, Vietnam and Southeast Asia). In addition, Sarawak stocks like HSL, Jaya Tiasa and Ta Ann are likely to be relatively immune, as the state election was already held in April, with two-thirds majority given to the incumbent Barisan Nasional-linked chief minister.

Strategy

As global headwinds remain strong and situations could get worse, we continue to advocate a defensive investment strategy, focusing on high dividend yielding stocks with reasonably good growth potential. Nevertheless, after a period of volatility, a recovery will undoubtedly follow and as such, we believe it pays for investors to accumulate fundamentally-robust stocks on weakness for tactical plays. Sector-wise, our key overweight are telecommunications, gaming, plantation, oil & gas and consumer.

Source: RHB Research Institute

New Fund: PB Growth Sequel Fund

Public Bank is launching a new fund, PB Growth Sequel Fund (PBGSQF) on 15 November 2011. PBGSQF is an equity fund that invests in a diversified portfolio of primarily Malaysian equities to achieve capital growth over the medium- to long-term period. PBGSQF is managed by Public Bank’s wholly-owned subsidiary, Public Mutual.

Fund Specific Benefits

PBGSQF provides investors the opportunity to participate in the medium- to long term growth potential of the equity market through investments in a diversified portfolio of  index-linked companies, blue chip stocks and companies with healthy growth prospects that are listed on Bursa Securities.

PBGSQF will invest in companies with reasonable earnings growth prospect over the medium- to long-term to maximize the growth potential of the fund. Some of the sectors that the fund would focus on include financial, communications, industrial and consumer sectors.

What is the Asset Allocation?

To achieve increased diversification, PBGSQF may invest up to 30% of its net asset value (NAV) in selected foreign markets which include Singapore, Taiwan, South Korea, Japan, Hong Kong, China, Thailand, Indonesia, Philippines, Luxembourg and other permitted markets. 

The equity exposure of PBGSQF will generally range from 70% to 98% of its NAV. PBGSQF is suitable for investors who wish to participate in the medium to long-term growth potential of companies listed on Bursa Securities.

What else should I know?

The Fund may also invest in equity linked Participation Notes for selected regional stocks listed on the Luxembourg Stock Exchange. Equity linked Participation Notes are instruments designed to track designated securities. The movement of these notes are similar to the underlying shares listed in their respective markets. These Notes are issued by international foreign broking houses for investment by investors who are not able to invest directly in the underlying foreign shares.

Other than that, the Fund may also invest in:

• listed warrants and options (if any) to enhance its returns.
• unlisted equities with attractive potential returns, particularly in companies that are expected to seek listing on the Bursa Securities or selected regional markets within a time frame of two years.
• collective investment schemes both in the domestic or selected regional markets.
• fixed income securities such as sovereign bonds, corporate debt and money market instruments to generate returns.

Source: Public Mutual

New Fund: PB Asia Pacific Enterprises Fund

Looking good on the long-term growth potential Asia Pacific region, Public Bank is launching its equity fund, the PB Asia Pacific Enterprises Fund on March 8. Managed by Public Mutual, the fund will focus on companies with market capitalization of US$ 1 billion and above in domestic and Asia Pacific, through a diversified portfolio of companies.

By investing in mid-to-large corporations, investors would be better positioned to benefit from the resilient activities in the Asia Pacific region. These type of companies tend to perform better given their leading positions in their respective industries and established market shares, especially during challenging market conditions just as now.

What did Public Mutual's CEO said?

"After a strong rebound in 2009, global and regional equity markets continued their uptrend in 2010 amidst improving economic activities. Despite the recent spike in oil prices, regional equity markets are expected to remain underpinned by reasonable valuations and resilient economic growth prospects over the medium-to-long term."

Fund Features

• The fund may invest up to 98% in selected Asia Pacific markets
• Equity exposure: 75% - 98%
• Exclusively distributed by Public Bank
• Suitable for investors with aggressive risk-reward temperament

www.financemalaysia.blogspot.com

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2010 Top 10 Malaysian Companies

Wall Street Journal (WSJ) recently announced the result of Asia 200 survey, which ranked the top 10 companies of selected countries according to financial reputation, corporate reputation, quality, vision, and innovation. Want to know the winners of Malaysia?

Wall Street Journal: "For the second year in a row, Public Bank Bhd ranked 1st overall among Malaysian companies. The bank's profit rose 20% to RM 2.2 billion on a 12% rise in revenue during the first nine months of the year.

Customer deposits grew at an annualized rate of 12.2%. Public Bank, Malaysia's 3rd largest lender by assets behind Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd (CIMB), also ramped up its Tier 1 capital ratio while touting a dramatically lower impaired-loans ratio at 1.2%, versus 3.4% for the industry overall."

Source: Wall Street Journal

Meanwhile, CIMB Group this year makes a new showing on the Asia 200 list, with a #7 spot. The group helm under Dato' Sri Nazir Razak, spearhead CIMB as a regional universal bank, setting its foot in Malaysia, Singapore, Indonesia, Thailand, Hong Kong, China, UK, USA, Brunei, Myanmar, Vietnam, Bahrain and Cambodia.

Surprisingly, Malaysia Airlines (MAS) was being ranked as #9 on the list, while AirAsia - the stiff rival - are not included. Anyway, MAS did turnaround recently after suffering from huge losses few years back. A police report against Tan Sri Tajuddin Ramli (former executive chairman) was lodged by MAS in 2002 for allegedly causing the national carrier to suffer losses in excess of RM 8 billion.

Ananda Krishnan's Maxis and Astro earned their place at 4th and 10th respectively. After re-listing of Maxis 2009, the billionaire took Astro, Measat and Tanjong private this year.

Source: Wall Street Journal