Top Story : 2010 Market Outlook & Strategy - Earnings recovery, but
anticipate global policy changes
Strategy Update
- The global and local economy has emerged from the recession
and the recovery is gaining momentum. Corporate earnings are also
trending up, with net EPS for the FBM KLCI benchmark projected to
bounce back to +15.0% in 2010 and 14.1% in 2011.
- Much of the positive developments, however, have already
been factored into the market, in our view. After adjusting for the
upward revision in earnings projection, our end-2010 FBM KLCI target
has been tweaked up to 1,400, based on unchanged 15x 2011 earnings,
which implies a potential upside of about 10% from the current level.
This is, however, consistent with the historical performance where
returns are always lower in the second year of a recovery.
- In our view, it may be a little too early to turn cautious
given a combination of economic and earnings recovery, reasonable
valuations, low interest rates and high liquidity. Nevertheless,
investors would have to factor in the anticipated global policy
changes in the months ahead, rebalance their portfolios and prepare
for greater market volatility in 2010.
- The challenge is to look for stocks that could generate
capital upside from earnings growth as well as have attractive
dividend yield to outperform the market. Apart from economic and
earnings recovery, we believe commodity/asset reflation theme could
gradually emerge as a catalyst for greater market performance in 2010,
while the power and telecommunications sectors also appear to be
interesting. In the immediate term, we are more positive on the
banking sector as an economic recovery play.
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