BEWARE, YOU HAVE BEEN WARNED.
Business & Markets 2012
Written by Chittesh Shukla of theedgemalaysia.com
Wednesday, 28 November 2012 11:56
KUALA LUMPUR (Nov 28): With the 13th general election (GE13) approaching, the market may drift lower in the coming months due to selling by local and foreign funds, AmResearch said in a market strategy report today.
The perceived uncertainty over the outcome of the election as well as the associated aversion to risks will trigger a tactical shift in asset allocation leading to a trimming of exposure to equity, it said.
The run-up to GE13 will see portfolio de-risking that will cast a downward bias on the market as fundamentals take a backseat.
“Domestic portfolio funds would now be selling into strength as opposed to buying on dips, implying that the market may drift lower in the coming months,” AmResearch said.
This de-risking maneuvering indicates that domestic institutional funds would be cashed up relative to benchmarks moving into the first quarter of 2013.
The redeployment of freed capital would primarily depend of the outcome of election, the report read.
“Our base case scenario is that the Barisan Nasional (BN) coalition government would be returned to power. The uncertainty is whether the BN would secure a stronger mandate compared to the previous election in 2008. A reduced majority in the last election led to a steep sell-down: the market collapsed by 9.5% in the immediate aftermath,” AmResearch opined in its report.
Although a weaker mandate this time around would still be a disappointment, it may not pose that big of a shock particularly with the market already retracing ahead of GE13, it said.
“The eventual removal of election overhang post GE13 should precipitate a market recovery as risk aversion eases to drive equity reweighting of domestic portfolios,” said the research house.
In addition, the greater clarity on the continuation of growth policies embedded in the Economic Transformation Programme (ETP) may spur stronger foreign interests.
“We set our end-2013 fair value for the FBM KLCI at 1,770, based on average price-earnings ratio of 15 times… The potential upside is about 10% from current the index level of 1,600. Corporate earnings are projected to expand by 11.5% in 2013,” AmResearch stated.
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