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| OSK advises investors to go defensive |
| Written by Financial Daily | |||
| Thursday, 02 July 2009 11:17 | |||
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“Although we still see the market possibly moving ahead on the new FBM KLCI and the PM’s 100-day speech in July, the rally is increasingly looking weary and there is a possibility that the KLCI could fall short of our earlier 1,150-point sell trigger. We advise investors to exercise greater caution and switch to a more defensive strategy with higher beta plays MMC, Wah Seong and Lion Industries replaced with Public Bank, Axiata and Top Glove,” it noted. “Although the KLCI chalked up a decent performance in June with a 31-pt rise, the bout of profit-taking in the middle of the month sapped the strength of our cyclical top picks, with only MMC eventually outperforming. While we see the PM’s announcement of capital market and property liberalisation as being positive, the market reaction was rather muted,” it added. For July, OSK cautioned that the KLCI could well fall short of its initial sell trigger of 1,150 pts. “We switch to a more defensive strategy and advise investors to get ready to sell on a significant retracement,” it said. “We had expected the rally which started in mid-March to continue but in line with global markets, which suffered a bout of profit-taking in mid-June, the benchmark index did not fully recover while the smaller cyclical stocks tended to underperform. The KLCI did put up a reasonable performance, rising 31.13 pts to 1,075.24 pts,” it noted. The research house added that last month was a month packed with news. “The month initially saw heavy trading on counters  for which there were no significant corporate developments such as Transmile and Compugates. The Selangor water asset takeover saga continued as the Selangor state government made new offers which were eventually rejected by three of the four water concessionaires. “The PM’s visit to China early in the month resulted in a few JV proposals for property development while O&G developments such as a new US$2.1 billion (RM7.39 billion) PSC between Petronas and Exxon as well as Dialog’s US$1 billion deepwater terminal were also announced,” it said. Moving forward, OSK said the liberalisation announced at Invest Malaysia 2009 recently would bring positive results. “The PM’s announcement of a rationalisation in the FIC guidelines by replacing the 30% bumiputera equity condition with a new SC guideline whereby 50% of an IPO’s public shareholding spread should be offered to bumiputera investors should help boost market sentiment. Similarly, the liberalisation of the property sector along with similar rules should increase the investability of the sector in the long run,” it said. “With the potential of more fund raising exercises, we see the smaller investment banks and property players involved in retail benefitting from the liberalisation,” it added. OSK also noted that the recent liberalisation would bring long-term positive effects for the capital market. “Given that companies typically offer 25% to 49% of their shareholding during a IPO, the new SC guidelines will mean that there is only a requirement to offer between 12.5% and 25% to bumiputera investors during an IPO. “We also understand that where the bumiputera portion is under-subscribed, the unsubscribed portion can be reallocated to non-bumiputeras, similar to what is being practised now. As such, this move should attract more local companies to list in Malaysia while potentially spreading out equity participation among bumiputeras away from selected Miti-approved entities,” it said. “The waiver of the 30% bumiputera equity condition for post-listing fund-raising exercises could also pave the way for more placement exercises and energise the domestic capital market,” it added. This article appeared in The Edge Financial Daily, July 2, 2009.
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