Market outlook

• Recent market gyration was largely in line with our Outlook and Strategy report published in early Aug 13, time to take a review.
• Fed tapering and macro headwinds lingering concerns.
• New geopolitical twist in Syria exaggerated volatility.
• External event risks - U.S. congressional authorization on Syria’s attack and debates on its debt limit as well as 17-18 Sep FOMC meeting and Germany federal election (22 Sep).
• Recent reporting season disappointment to say the least.
• Net foreign inflow of RM17.8bn since QE3 an overhang.
• Technical suggest consolidation with downward bias.
• Policy response to address Malaysia fundamentals positive longer term but implies more mundane growth of sub-5% rather than 5-6%, in line with HLIB projection.
• Sticking to downside risk of 1,700 and worst case of 1,630.
• Lingering concerns with new geopolitical twist and uncertainties about announcement from Fiscal Policy Committee up to Budget 2014 warrant fine-tuning of strategy and...

FBM KLCI target

… reversion of P/E valuation from 15x to historical mean of 14.66x or 1,780.

Strategy

Lightened up on stocks that are fundamentally overvalued (HLIB’s top Sell list and Vulnerable) and rebalance portfolio to more defensive (Defensive list) and cash stance.

Enable better capital conservation for more aggressive stance to bargain hunt stocks which are fundamentally sound (but may succumb to risk-off trade) at more palatable valuations (Opportunistic list) when the FBM KLCI retrace to around the 1,650 level.

Sell list (vis-à-vis the list in our Outlook and Strategy report back in early Aug 13) excluded Affin and Oldtown as share prices retraced to lower levels while added Mas.

For same reason, excluded AFG and AMMB from Vulnerable list but added KLCC Prop and Lafarge.

Defensive list extended (mixture of yield, stable earnings and beneficiaries of structural changes) to provide flexibility in capital conservation. New inclusions are MAHB, Matrix, Pharmaniaga and TDC.

Opportunistic list, due to share prices retracement and subsequent rating upgrades, replaced Dayang, Mudajaya and Perisai with MISC, Scomies and Sunway and added Brahim’s.

Source: Hong Leong Investment Bank Research- 3 Sep 2013