Malaysia Stock Rally to Wane as Value ‘Vanishes,

May 26 (Bloomberg) -- Malaysia’s stock rally that pushed
the benchmark index to an eight-month high may falter because
shares reflect “implausible” profit growth expectations, said
Maybank Investment Bank Bhd.
“History tells us the bear market isn’t over,” Andrew Lee,
an analyst at Maybank Investment said in a report today.
Valuations “have reached implausible levels. A profit recession
has just begun.”
He expects the key stock index to fall to 990 by year-end.
The measure slid 0.2 percent to 1,050.62 as of 4:05 p.m. in
Kuala Lumpur, the first drop in three days.
The benchmark Kuala Lumpur Composite Index has surged 20
percent this year, lifted by market gains in Asia amid optimism
the global recession is easing and Prime Minister Najib Razak’s
effort to bolster spending and open up the country’s services
and financial industries will bolster economic growth.
“Market growth expectations seem to be running ahead of
reality,” with shares moving “too far, too fast, Lee said.
“We are at best, halfway through this bear market,” he said.
The market currently trades at 15.2 times 2009 estimated
earnings, up from 12 times earlier this year, Lee said. This is
only 10 percent below the previous cycle’s mid-cycle value, even
as corporate profits are expected to shrink 7.7 percent this
year, he said.

‘Are We There Yet?’

“Four months ago, the question ‘are we there yet’ could
only refer to whether markets had reached the bottom,” Lee said.
“Today, it could equally refer to whether we have reached a top
-- that is the measure of how confused investors are.”
The lesson learnt from the previous bear markets is that
“we are not out of the woods,” he said.
Two previous bear markets, from 1981 to 1985 and 1993 to
1998 lasted 57 and 58 months respectively, he said. It has now
been 17 months from the January 2008 “collapse,” he said.
During those bear markets, the stock index has risen at
least 5 percent by as many as 38 times, he said.
“We have now seen 12 since January 2008,” he said,
suggesting the bear market isn’t over.
Each of the bear markets witnessed one major rally before
continuing its downtrend, said Lee. In the 1981-85 bear market,
a rally retraced 64 percent of its drop before continuing its
decline, he said.

“Be Realistic’

The present bear-market rally has retraced 32 percent of
its drop, he said. “Be realistic, be selective.”
Investors should buy construction companies such as IJM
Corp to ride on the government’s efforts to boost spending to
revive economic growth, Lee said. Najib has unveiled a total of
67 billion ringgit ($19 billion) in public spending, loan
guarantees and other stimulus measures to boost growth.
The central bank has also cut interest rates by 1.5
percentage points since late November.
Investors should also load up on consumer stocks including
KFC Holdings (Malaysia) Bhd., while shares that surge on hopes
of “near-term earnings recovery” should be sold, Lee said.