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CIMB: KLCI may hit bottom in second half

Posted on: March 19, 2009

Bernama – Thursday, March 19

KUALA LUMPUR, March 18 (Bernama) — The Kuala Lumpur Composite Index (KLCI) may go down to 700 points in the second half of 2009 before staging a mini-rally by year-end, CIMB private banking co-head Alan Inn said today.

“The market always acts ahead of the real economy, so we hope the market will find the bottom and rally by year-end,” he told reporters on the sidelines of the CIMB Private Banking Investment Conference 2009 here.

“But from then on it will be a bit of bumpy ride. I am not expecting a bull run even next year,” he said.

The benchmark index ended the day 0.99 points higher at 841.87 after opening 5.07 points higher at 846.94.

Inn said it was not impossible for the local bourse to take a dip from the current level because the market volume has also fallen a great deal.

“But at the same time, the saving grace is that we have the government planning to buy up equities in the market,” he said.

However, if the global trend indicates another wave of selldown for whatever reason, Inn said it would be hard to fight it.

“Hopefully, it will not get below 700, although it is a remote chance at this point of time. The 700 plus level should be the bottom, and hopefully there won’t be more bad news from the United States,” he said.

According to Inn, the Malaysian equity market has not been as badly hit as some of its regional peers.

This was because the country is seen to be robust partly due its fundamentals, especially in terms of the banking system and the reserves which look comparatively better than others, and with the natural resources that helped bolster growth, he said.

Inn said the group was forecasting a contraction of 0.5 percent of the gross domestic product (GDP) this year and a growth of 1.5 percent next year.

“Looking at the indications, the economy should find a bottom this year, with the fiscal stimulus kicking in and the interest rate having come off a great deal,” he said.

However, Inn said all the fiscal stimulus as well as borrowing and spending by governments worldwide would mean an increase in the debt level globally.

“What it means is that when the economy stabilises and growth gets back on track, governments have to perhaps start raising taxes around the world, to find revenue sources to repay the debts”, he said.

In addition, the stimulus injected will also lead to inflation due to excess liquidity in the market, Inn said.

“Central banks around the world will have to think about withdrawing those liquidity once growth is on track. Otherwise, we run the risk of having massive inflation that we have not seen before,” he said.

Inn said it would take a while before Malaysia goes back to the “good old days” of posting four to five percent growth and the country needed a new catalyst to bolster the economy.

According to him, the biggest risk for Malaysia is in the manufacturing sector and those geared towards exporting.

“Americans are huge consumers and their economy takes up two-third consumption from Asia and the rest of the world. Their need to save means they will consume less and our exports will probably be sluggish,” he said.

“If we don’t have a new source of growth, we might not see the return of bull market sooner.”

Inn said the government’s move towards enhancing and liberalising the services sector was the right move, espcecially since its contribution to the GDP has been increasing over the last 10 years.

He said it was also important to encourage foreign participation in the sector to raise the technical knowledge and acquisition of talent.

“There are many Malaysians abroad who might want to return or should be called back to lay the foundation for the future of the services sector,” he added.

Inn said that rules and policies needed to liberalised so as to not hamper investments and encourage more foreign players, as Singapore has successfully done.

“Looking at KLCI or Bursa Malaysia, a lot of the stocks are no more manfacturing but services-based. The manufacturing counters must have a competitive edge or investors won’t even look at them,” he said.

“As far as the manufacturing sector goes, we’ve been relying too much on foreign labour to keep cost down and we cannot rely on it perpetually.” — BERNAMA


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