10:41 am – Nomura : Strategy | MALAYSIA – Malaysia Boleh #1: ride the next leg up
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FYI….. Nomura : Strategy | MALAYSIA – Malaysia Boleh #1: ride the next leg up
Strategy | MALAYSIA
Despite a 34% rise YTD, we say the rally is not over. Post-crisis rallies have lasted an average of 76 weeks in the past four recessions. We believe it is too early to call an end to this 44-week old rally, with earnings upgrades just kicking in from July. Post the 1998-00 market recovery, earnings upgrades lasted for 18 months.
Our view
Anchor themes
Taking a cue from past post-crisis rallies and historical earnings upgrades cycles, it is a challenge to call an end to the rally. Economic recovery should continue to underpin earnings upgrades, supported by ongoing stimulus spending. But from a regional perspective, Malaysia could lag as cyclical markets elsewhere offer return.
Most stocks have surpassed their mid-cycle historical P/BV valuations. We urge investors to be selective in the high beta space, but stay adequately weighted in the defensive space since we believe the market should stay on an uptrend.
Malaysia Boleh #1: ride the next leg up
Clues from history
Average post-crisis rallies for the market last roughly 76 weeks. The current 44-week old rally is even shorter than the shortest post 1982-83 US recession rally (50 weeks). Arguably, there is still plenty of upside if one were to benchmark the current rally to the post 1997-98 Asian Financial Crisis rally that lasted 79 weeks, when the index rose 205%.
Too early to turn bearish
Malaysia has underperformed its regional peers. Despite the recent rally,recent fund flows continue to suggest low foreign participation, and there are still plenty of sceptics hoping for pull-backs, to allow them to participate in the market. Investors, in general, are still mixed on the direction of the market — even those that have participated in the recent rally do not seem to have strong convictions on its sustainability.
Earnings revisions: still early in the cycle
Consensus earnings upgrades only started in July 2009. After a series of downgrades, 2009F market EPS growth reached a trough in June, while the 2010F EPS growth started trending up from May. Looking at previous cycles, our revision index suggests that coming from a depressed level, upward earnings revisions could last up to 18 months, as experienced during the post 1998-00 market recovery.
Stay adequately invested in the defensive space …
We like DiGi and Tanjong Plc in the defensive space.
… be selective in cyclical names
AMMB, Genting Bhd and Berjaya Sports Toto are our top picks in this space. Investors should continue to reduce weightings on Genting Malaysia ahead the opening of the two new casinos in Singapore.
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