Monday, 29 March 2010

Investors to be all ears at PM's address

Published: 2010/03/29

The two-day Invest Malaysia conference, beginning tomorrow, will most likely hog the spotlight of market-moving news flow this week.

It has traditionally been the stage where investor-friendly policies are announced by the government, while corporate chieftains strive to sell their story to fund managers attending the event.

Prime Minister Datuk Seri Najib Razak's keynote address will be the highlight, and he is expected to unveil the first stage of a new economic model.

Investors are also looking forward to more information on the next privatisation wave, in which the government is said to have identified companies that it may sell its stakes in later this year.

The anticipated details on this front will likely generate more excitement in the immediate term.

But how the government plans to reform Malaysia's economic structure is crucial to win over investors, especially after the disappointing twists in some previously announced policies.

"While the Najib administration undoubtedly exceeded our expectations in 2009 by announcing various reforms that required strong political will, of late, the pace of reform seems to have slackened," OSK Investment Research noted.

The stockbroker pointed out the scrapping of the proposed tiered fuel subsidy and the delay in a decision on the power tariff increase as well as the second reading of the Goods and Services Tax (GST) Bill in Parliament.

"We believe these developments may give rise to concern among foreign investors that there might be a potential slowdown in economic reform, thus making Malaysia less of an attractive investment destination," OSK said.

Last week, water-related stocks were in the spotlight after Gamuda's 40 per cent-owned subsidiary, Syarikat Pengeluar Air Sungai Selangor (Splash), made a RM10.8 billion offer to take over the Selangor state government's water-related assets and operations.

Bank Negara Malaysia's raised projection of economic growth this year of between 4.5 and 5.5 per cent provided some cheer.

The local stock market will likely face some volatile times ahead, OSK said. While corporate earnings reports in the fourth quarter of last year proved surprisingly strong and spurred a rally early this month, fears of a contagion effect from Greece's budget deficit problems, concern over interest rate movements in China and perceived risks of a possible slowing of reforms back home saw the benchmark FBM Kuala Lumpur Composite Index first rally some 58 points by March 10, only to give back more than half of it over the following weeks.

In view of the volatility, OSK said, investors should be cautious on cyclical blue chips. It advised investors to shift some of their portfolios to more-defensive big-caps, such as higher-yielding utility and gaming stocks like Tanjong, PLUS, Petronas Gas and Berjaya Sports Toto.

"At the same time, we do not advise total avoidance of small-caps. Indeed, the volatile market could provide ample opportunities to trade small-caps. We continue to advise trading in small-caps in the construction (particularly with exposure to Sarawak), steel, rubber glove and healthcare sectors. We believe the market may swing between the 1,250 (15 times price-earnings multiple) and 1,400 (16.5 times price-earnings multiple) levels for the next four to five months," the broker said in a market strategy report last week.

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