Bracing for a bumpy Ox year

21-01-2009: Bracing for a bumpy Ox year

AS the year of the Rat leaves behind a trail of financial mess, investors should brace for a bumpy ride in the year of the Ox as global economies are battling to put the economy back in order, said HwangDBS Vickers Research.

“As we usher in the new year on the Chinese calendar, investors ought to be realistic in their expected rate of returns from equity investments in the year ahead.

“To prosper, investors might have to behave and act like the Ox. Be patient and search for stable long-term investments,” it said. HwangDBS remained underweight on the local bourse.

However, it was bullish on an eventual rebound even though the ongoing adjustments in global equities could stretch over a long period.

“Investment rewards remain probable if investors are diligent in their methodological search for undervalued companies. They must also be prepared to set their investment horizon beyond the prevailing market circumstances while keeping capital preservation a top priority,” it said.

Overall, as the year of the Ox plods on with sheer tenacity, the research firm expects the Kuala Lumpur Composite Index (KLCI) to touch 950 points at the end of 2009.

In its annual reading of the stock market fortunes, pieced together with opinions from feng shui masters, geomancers and astrologers, HwangDBS said industries that are associated with the Earth element — property, agriculture and construction — were expected to see average performance even though the year of the Ox would be ruled by a combination of Earth and Earth elements.

“In contrast, sectors that are based on the Wood element might prosper because it thrives on soil, represented by the Earth. These include timber, textile and education. Also likely to fare well are industries with links to the Metal element, such as banking, high-tech businesses and gold,” it added.

Based on its top-down analysis, the research firm selected Public Bank Bhd, AMMB Holdings Bhd, IJM Corporation Bhd, Resorts World Bhd and YTL Power International Bhd, which would be likely to breach the benchmark KLCI performance in the new lunar year.

“Public Bank is a regular feature on our yearly list of stock picks. It is dependable, with visible earnings and dividend streams. It is also conservative (with its low non-performing loan ratios even during past economic down cycles).

“Public Bank is a safe bet for investors who view security as an important investment consideration,” said HwangDBS in maintaining a buy call on the stock at RM8.65.

It also reaffirmed a buy stance on AMMB (RM2.39), IJM Corp (RM3.46) and YTL Power (RM1.90) while reiterating a hold call on Resorts World at RM2.23.

Investors keen on AMMB would have to persevere and be patient before they could reap the potential awards from the financial institution’s synergistic relationship with Australia’s banking group Australia and New Zealand Banking Group Ltd (ANZ), it noted. ANZ currently owns a 19.7% stake in AMMB.

HwangDBS opined that IJM Corp, a construction outfit, could be a potential beneficiary if the government decides to boost infrastructure spending.

“IJM is known for its good corporate governance track record, perhaps taking a cue from the Ox’s no-nonsense character,” it said.

“We also prefer cash cows, given their strong financial muscle to weather the storm. These include Resorts World, which is sitting on a RM4.5 billion cash pile as at end-September 2008, and YTL Power,” it said.

YTL Power has a gross cash of RM7.1 billion, which was adjusted after its recent acquisition of Singapore-based energy company PowerSeraya Ltd.

“These companies belong to the industrious types, always on the lookout for possible acquisition opportunities to propel future earnings growth,” it said.

At the close of trading yesterday, Public Bank slid five sen to RM8.70, AMMB shed three sen to RM2.36, IJM Corp fell six sen to RM3.40 but Resorts World rose four sen to RM2.27 and YTL Power slipped one sen to RM1.89.

Theedgedaily