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S & P’s Raises KLCI Target To 1150 By Year End

Posted on: June 30, 2009

Bernama – Saturday, June 27

KUALA LUMPUR, June 26 (Bernama) — Standard & Poor’s Equity Research (S&P’s) has raised its year end target for the Kuala Lumpur Composite Index (KLCI) to 1,150 from a previous target of 1,100. It has projected the KLCI to move to 1,300 at the end of last year.

“We expect some volatility in the short term. There (will be) a correction but investors will pick up some stocks,” said its vice president, Equity Research, Asia, Lorraine Tan to reporters here.

“We still like the bank (banking sector), we also expect real estate companies that have been lagging to do better.”

She said the construction sector was also favoured as the stimulus packages are expected to benefit them, she said.

S&P’s said the 1,150 target implied an eight percent rise from the June 5 level of 1,069 points in the second half of this year and a potential gain of 13 percent in 2010.

The KLCI closed 1.66 points higher at 1,075.77 today.

“The market is relatively fairly valued thus we don’t expect a big run up as we saw in the recent rally,” Tan said.

“We would expect more gradual increase in share prices compared to what we have seen in the first half of this year,” she added.

Asked whether she sensed any foreign fund flows into the local bourse, Tan said, “The ratio of market capitalisation compared to cash in the banking system is still at a very low level.”

This means there is still potential for more money to come into the market and that should underpin support for the local market.

She noted that funds have started to flow into the Asian market particularly because, “a better growth prospect is seen in this region.”

Asia has also not undertaken any restructuring that Europe and the US have done in their financial systems, she said.

The independent equity research also lowered its 2009 gross domestic product (GDP) forecast to a contraction of around -3.5 percent to -3.3 percent from -1.0 percent previously.

She said the figure was better than the government’s forecast as the research company expected the regional stimulus packages to help lift the overall economic growth in the region as well as in Malaysia.

The government is projecting an economic contraction of -5.0 to -4.0 percent, this year.

“On the whole, we expect gradual recovery in the US and we don’t think inflation will come back in a big way until 2010 because of excess capacity worldwide,” she added.

S&P’s expects the US economy to begin to recover late this year but at a sluggish pace.

Asked if any change was expected in interest rate, Tan said, “We don’t expect much change this year. Bank Negara Malaysia is unlikely to raise the interest rates until there are signs of stability.”

However, she said as the economy stabilises next year, interest rates could rise.

Tan said it would be a “mild increase” of about 50 basis points to one percent.

“Two percent (overnight policy rate) will stay for this year and maybe next year we will see 2.5 percent,” she added.

She said the data on improvement and recovery would most likely be obvious around the first quarter of next year, while the changes would “probably start to happen in the second quarter to the middle of the year.” – BERNAMA



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