Thursday, August 31, 2006

Economy & Equity Market - Malaysia

sopskysalat: wonder if you can post your view on us economy going forward as the current slowdown is lingering in everyone's mind. also, i find the equity market also find itself in an uncertain state.

Economy - Excellent, currency is the main issue, then interest rates. If you line up our ringgit against all major currencies, you will find that the ringgit has the highest correlation with the renminbi over the last 10 months. Bank Negara sees being competitive vis-a-vis the Chinese currency as the most important determinant even though US remains our top trade nation. But as a bloc, Asian countries will be increasingly important as a trade bloc and trade partner. No point benchmarking to the US as the dollar has a lot of things they have to rectify with the underlying US economy. Beijing is loathed to raise rates owing to gthe massive credit binge in their system. Beijing will continue to allow the yuan to appreciate and that means the same thing for the ringgit. In terms of purchasing power, the ringgit can go to 3.4/USD this year without affecting competitive edge too much. For 2007, we can average 3.2. That is an important consideration when in the eyes of investors. Foreign investors were pretty pissed off in 2005 with Malaysia cos they betted for a revalued ringgit but it came way too late, which was why other emerging mart performed so much better than KLSE. A firming ringgit gives investors a good safety margin in equities. Hence interest rates would not be excessive as well. Imported inflation will be subdued.

Equity - If you look at the quarterly earnings of top 20 stocks in 2004 and 2005, most are flat or down year on year basis. The uptick started over the last 2 quarters and corporate earnings seem to have turned a corner. Liquidity is good but not excessive. Khazanah's KPIs are a good start, let's see how that goes. Palm oil has a new bottom threshold underpinned by a substantive new form of demand. Palm oil rally not over, PER ratings for all palm oil stocks can move up another 10% at least over the next 6 months. Look for companies with a bias towards younger plantations coming onto to mature stage in 2007 and 2008 in particular. KLK and PPB stand out. While things look good, they are not exactly the recipe for a major bull run. Its a gradual rise, I see index trying for 1,000 before the year is over and 2007 may see a test of the 1,035 by March/April before subsiding. M&A plays will take centerstage - RHB Capital, EON, DRB Hicom, Proton will take their turns. Trading stocks with corporate exercises - Konsortium.

1 comment:

Synchronic Birch said...

Hello, thought you might want to take a look at Salcon. Water play, but the movement of the stock looks like something's going on. Don't think there's much public float left....reminds me slightly of Liihen.

Jaks is also seeming some movement, and seems to have taken a slight and minimal measure of correlation with Salcon. Water play, you know.

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