Am Research - Budget FY2015: Budget 2015 : MARKET STRATEGY: Which stocks to BUY? From the market’s standpoint, Budget 2015 is a non-event. We have tweaked our end-2014’s fair value for the FBM KLCI to 1,800 as we trim our corporate earnings growth estimate to only 1.8% for this year (2013: 10%). Although we are currently projecting corporate earnings growth to reaccelerate by 9.9% moving into 2015, we are introducing a modest 2015’s fair value for the FBM KLCI at 1,880 – based on 16x PE. We expect to see elevated volatility as a stronger US economy with the associated robust macro data points collide with growing concern of a sooner-than-expected reversal in liquidity from a hike in the US Fed Funds rate. While the risk of a pullback in external liquidity is a lingering concern, we do not believe that the exit of foreign funds would have a significant impact on the FBM KLCI. This is because foreign ownership of the market is already very low at only 23.6% as at end-August 2014. Furthermore, domestic liquidity would be more than enough to offset the outflow of foreign funds. The risk is in the MGS market where foreign ownership is very high at 47.3% (RM148 bil) as at end-August 2014, which may have some repercussions on the cost of funds. The key challenge for the market is the lack of conviction over its earnings momentum to improve current valuations. We continue to advocate a bottom-up stock picking approach.
Posted on: Tue, 14 Oct 2014 02:27:36 +0000
Trending Topics
© 2015