2010 strategy
To outperform in 2010, investors have to buy on dips. Buying opportunities will arise from concerns on inflation, monetary tightening and double dip recession. We expect fundamental and liquidity factors to drive the FBM KLCI up to 1460 pts by year-end. For the Year of the Tiger, we will focus on domestic consumption plays, and top picks in the big cap space are CIMB, Maybank and Genting.
The three bears
* 2010 will be a year of tug-a-war between liquidity versus fundamental factors for equity investors which will result in choppier markets.
* To ensure outperformance, investors have to buy on dips.
* Buying opportunities will arise from concerns on inflation, monetary tightening and double dip recession.
Three re-rating catalysts
* Despite our expectations of choppier markets, the uptrend remains intact.
* The persistent weakness in the USD will continue to fuel the dollar carry trade and the liquidity party.
* Fundamental re-rating catalysts include a new investment cycle, revitalisation of the equity market and sustainable economic recovery.
FBM KLCI year-end target 1460pts
* Fundamental factors are not the most appealing with forward PE trading at 14.4x, which is close to 10-year mean.
* However recall the most recent liquidity party driven by the yen carry trade, ended with PE multiples peaking at 22x in January 2008.
* Taking into account fundamental and liquidity factors, we derive a year-end index target of 1460 pts or 15% upside.
Top picks
* In 2009 we told investors to hedge against inflation with positions in the property and commodity sectors.
* For 2010, we will focus on domestic consumption plays, given the economic recovery, stronger inter-regional trade, high savings rate and low unemployment.
* Top picks in the big cap space are CIMB, Maybank and Genting, whilst mid-caps are AMMB, Tanjong, Astro and UEM Land.
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