Thursday, August 7, 2008

M'sia 'attractive' but..........

With Oil and Gas and Plantation sectors retreated from its all time high, compounded by political uncertainties, what is there for Bursa Malaysia? If plantation were to correct by 40-50% and stay low for next 1 - 2 years, this will reduce KLCI index target by 8 - 10%, meaning KLCI new target could be in the range of 1170 - 1280 instead of 1300 to 1400.

A recent Merrill Lynch fund manager survey on global emerging markets found that more fund managers had an 'underweight' stance on Malaysia last month (56) compared to April (44).

In the same period, the number of those holding 'overweight' positions fell to 13 from 22.

According to stock exchange operator Bursa Malaysia Bhd, foreign investors accounted for about 42 per cent of trading value in the market in the first half of the year, compared with 37 per cent in the whole of 2007.

But in terms of foreign ownership, it was in the 'low 20s per cent', compared to the 'mid to high 20s per cent' last year, Bursa Malaysia chief executive officer Yusli Mohamed Yusoff had said.

What happened to Bursa Malaysia is nothing unique. We are entering a very bearish moods around the world. Worldwide equities are cheap by historical standards 10-12 times trailing-PE. However we must find out whether corporate earnings have hit the peak? Take some of the banks in Hong Kong for examples:

(The Standard Finance) Bank of East Asia (0023) yesterday announced its first year-on-year drop in interim net profit since 2002, posting a decline of 52.4 percent on the back of collateralized debt obligation and structured investment vehicle writedowns.

Net profit in the six months ended June 30 had been expected by analysts to fall by only 13 to 20 percent. Instead, the bank reported an interim net profit of HK$894 million, compared to HK$1.877 billion the previous year.

Repricing of Bank of East Asia will be around HK $ 31 not HK $ 50 - HK $ 60. A new anchor required.

(WSJ)HSBC has allocated plenty of capital to Asian markets, including China and India. The long-term economic outlook is good. But as the sharp declines on Asian stock markets have shown this year, there could be hiccups along the way.

Meanwhile, HSBC's return on assets has fallen recently in Hong Kong. In the rest of Asia Pacific, its first-half return fell to 1.4% from 1.7% a year earlier.

These disappointing returns have proved a drag on HSBC's overall performance. And the self-styled "world's local bank" remains weak in some regions where growth is fast.

Berkshire generated 4-5% in 1973 - 1974 bear market while S & P declined between 15 to 26%. However, S & P YoY change in 1975 and 1976 was 37% and 24%. Those bought in 1973 - 1974 were rewarded handsomely provided bought around bottom, 30-40% declined from the top.

So, let's wait a little more patiently.

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