We foresee that the KLCI’s uptrend is intact, supported by further strengthening of the economic recovery, positive domestic news flow and projected appreciation of the Ringgit.

Our end-2010 KLCI target stands at 1,448 points (16x 2011 earnings). Nevertheless, there would likely be intermittent profit-taking in the near term following the benchmark KLCI’s impressive 50% gain from the March low. Positive outlook for bank, construction, property and power sectors. Stock-picking remains our preferred strategy. Key picks include CIMB, Gamuda, SP Setia and MRCB.

We expect a sharp rebound in GDP growth of 5% in 2010 (from - 2.4% in 2009). Reforms and initiatives introduced by the new Prime Minister to attract investments, stimulate growth and transform into a high income economy should continue in 2010. Stake sales in government linked companies should help improve liquidity and weightings. By end-2010, we expect the Ringgit to appreciate c.5% against the USD. This could boost foreign fund ownership of 21% as at Sep 09, which is at its lowest since end-2004.












We are keen on potential opportunities for private sector participation with privatization projects and government land sales. The government has identified companies owned by the Ministry of
Finance that can be listed or privatized/sold in 2010. CIMB could be a potential beneficiary of listings, M&A advisory and/or fund raising from such transactions. We are excited over the value-enhancement opportunities from redevelopment of strategic government land. MRCB would be well-positioned for such prospects with proceeds from its rights issue, in our view. Players with a strong balance sheet and excellent track record such as SP Setia could also participate in such projects. 2010 should also mark the award of 3 mega projects – Low Cost Carrier Terminal (LCCT), Interstate water project and LRT extension – where potential beneficiaries include Gamuda, IJM Corp and MRCB.

We like banks as proxies to the strengthening of the economic recovery. Provisions should continue to taper off in the coming quarters and there could be further earnings upgrade for selected banks such as Hong Leong Bank and RHB Capital when the Overnight Policy Rate rates move up. Our picks are CIMB, Public Bank and Hong Leong Bank.

















We like Tenaga as a beneficiary of the economic recovery. Earnings are sensitive to demand growth. Every 1% improvement in electricity demand would raise earnings by 9%. We also favour Tanjong as a value play. The stock is trading at 10x FY10 earnings and offers 4.2% yield supported by its resilient earnings. Other picks include MISC, Malaysia Airports, E&O, DNP and Alam Maritim.