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.
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| 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
