Thursday, December 29, 2011

CIMB 2012 Strategy - A Challenging Year Ahead

A challenging year ahead  

Investors need to tread carefully in 2012 which could be a very tough and volatile year for the stock market. Besides having to contend with a slowing economy, investors will very likely have to brace for the impact of the 13th general elections, amid a multitude of risks.

Bearish Forward GDP Estimates

We downgrade Malaysia from Overweight to Neutral and reduce our end-2012 KLCI target from 1,570pts to 1,520pts due to earnings cuts in the Nov results season. Our target basis  remains 12.6x P/E, a 10% discount to the 3-year moving average P/E.

Confluence of negatives
Malaysia is widely considered to be a low-beta defensive market. But general election volatility now adds to concerns over the global economic health resulting from debt problems
in Europe and the US. We expect a mild recession in Europe and a marked slowdown of growth in the US. Malaysia’s economic growth will also ease to 3.8% in 2012 while corporate profits should be crimped too. Investors need to tread carefully given this confluence of  negatives.

13th general elections
General elections are not due until mid-2013 but will, in all likelihood, be called sometime in 2012. PM Datuk Seri Najib Razak was quoted as saying the next election posed “an extraordinary and bitter challenge to Umno.” After the 2008 general elections, the KLCI  plunged 10% in the first trading session and circuit breakers kicked in for the first time ever.  Nonetheless, we expect positive momentum to be built in the period ahead of elections and  recommend that investors top slice in the event of a pre-election rally.

Sector and stock picks
In view of our more cautious market outlook, we advise investors to shift away from cyclical sectors such as building materials and autos to more stable ones such as telcos, utilities, gaming and REITs where earnings are more defensive and dividend yields higher. We still like the major winners of the Economic Transformation Programme (ETP) including the oil & gas,  construction and property sectors, but we would be more selective in these picks. 


Source: CIMB 2012 Strategy

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