BN won

As anticipated by the market, Barisan Nasional (BN) retained its simple majority (albeit reduced) in the just concluded 13th General Election.

With the GE13 over, market forces will come back into play.

Despite the correction last Friday, we believe that the market has generally factored in a BN win. Thus, given the absence of surprises, we believe the market may be facing the predicament of "Sell in May and go away"

Outlook

Recall that based on our findings in our report entitled "Sell in May – Myth or Fact?" dated 29 Apr 13, the month of May is normally accompanied with volatility. 19 out of the last 20 years the FBM KLCI suffered correction (when compare end-Apr with May lows) but 15 out of 20 years it ended the year higher than May lows. Of the remaining 5 years where FBM KLCI ended lower, 4 was "exceptional".

The "May Omen" could materialise given that the market has already priced in a BN win ahead of the 13th GE; there could be earnings disappointment from the Plantation sector (~16% of FBM KLCI weight); short-term economic weakness (US sequestration, China structural adjustment and weak domestic IPI); and negative technical readings.

However, given that 2013 is NOT an "exceptional" year, we believe any weakness is opportunity to position for a better year end. This is premised on ample liquidity to remain (Fed and Japan to continue with QE operations); Equity better asset class than bonds and property at current juncture; room for foreign shareholding of 24.3% to advance to peak of 27.5% in 07 (P/E of 14.5-17.8x); and catching up with other ASEAN bourses as part of ASEAN growth story.

Strategy

Thus, we continue to advocate focus on proxies to the COC (Construction, Oil & Gas and Consumerism). COC stocks are expected to be less susceptible to gyration as conducive environment support earnings growth and attract investors.

With the 13th GE now over, we have realign our picks into COC and Laggards. For Construction, as most big caps are near our target prices, we prefer mid-small caps (KimLun and Sunway). Similarly, for Oil & Gas, we prefer Dayang, Perdana and Perisai. As for proxy to consumerism, we prefer those that are overlay with overseas growth and or beneficiary of structural change - Genting, MAHB, Maybank, RHB Cap and TNB.

We also believe that without the GE overhang, YTD laggards like Boustead, DRB, MRCB, Mudajaya, SK Petro and TDC are likely to perform under such circumstances.

Investors should also look at Iskandar related stocks as BN would continue to focus its efforts in developing the state. FBM KLCI target

Maintain end-2013 target at 1,750 or 14.5x (vs. mean of 14.8x) 2014 earnings.

Source: Hong Leong Investment Bank Research - 6 May 2013