KLCI target of 1,400.

New listings coming on stream. With the improving economic outlook, we see PM Najib Razak’s new reform policy measures gaining some momentum in terms of execution. JCY International, a Malaysian hard disk drive components maker, has submitted an application to list the company in what is probably the country’s second-largest IPO over the last six years with an estimated offering of M$1B (according to the Edge newspaper). This follows the announcement made by the new administration on a modification of Bumiputera equity ownership requirements upon listing from 30% previously to 12.5% on a best efforts basis.

· Financial sector liberalization is happening. On 20 November 2009, the Malaysian government issued a commercial bank license to Industrial and Commercial Bank of China Limited (ICBC). Note that this license is separate from the five new commercial banking licenses (two in 2009 and 3 in 2011) that will be issued under the liberalization initiative that was announced on 27 April 2009 which is currently in progress. On the capital markets front, Goldman Sachs has been granted a license by the Securities Commission to establish a fund management and corporate advisory business following the recent policy change in allowing 100% foreign ownership of fund management and corporate finance firms in Malaysia.

· We hope to see more execution of policy reforms in 2010. Possible events to watch out for include:- 1) high profile infrastructure projects and government procurement contracts awarded on open tender basis; 2) revitalization of GLC transformation programme including selling down holdings to facilitate liquidity; 3) increased corporate activity that could boost the earnings profile of the domestic equity market; 4) new foreign investment into the recently “liberalized" services sector and Iskandar region.

· Dec-10 KLCI target of 1,400. To recap, our positive stance on the Malaysian equity market in 2010 is based on policy implementation surprising on the upside aided by tailwinds from an improving external sector and globally low interest rates. Top picks are Public, AMMB, Tenaga, Sime Darby, Genting and IJM. Avoid Maybank, YTL Power and MISC.