The KLCI performed as expected, trading between the 1190 and 1150 pts levels.With fears of greater anti-speculation controls in China, East Asian markets generally languished. Going forward, we see investors pulling money out of the region as valuations look expensive. Nonetheless, there remains sufficient liquidity locally and with investors looking 12 months ahead, we roll over our KLCI valuation to 14.5x 2010 earnings to derive a new fair value of 1144 pts. We therefore upgrade our call to NEUTRAL from Sell into Strength and continue recommending Trading on Smaller Cap stocks within the O&G, Rubber, Steel and Construction sectors.
Going smaller cap. While we continue to see the market as expensive, we note the continued liquidity and that investors are looking forward towards 2010 earnings. As such, we roll forward our KLCI valuation to 2010 earnings to derive a new 2009 KLCI fair value of 1144 pts on 14.5x 2010 earnings and 2010 fair value of 1265 pts on 16x 2010 earnings. In terms of trading strategy, we are therefore NEUTRAL on the market and continue to recommend Trading on Smaller Cap stocks. For our Top Buys, we replace Genting Malaysia with MMC and WCT with Mudajaya in line with our smaller cap focus.
Axiata 3.15 FV3.68 26,602.1 20.2 14.2 0 1.3 BUYMMC 2.35 FV2.95 7,155.9 23.3 13.5 1.1 -3.1 TRADING BUY
Top Glove 6.95 FV8.50 2,109.3 13.8 12.3 1.9 2.7 BUY
Mudajaya 3.30 FV4.80 1,208.7 15.9 8.3 0.5 3.6 BUY
MRCB 1.28 FV1.69 1,161.6 48.0 33.0 0 1.8 TRADING BUY