Happy ending in sight
• December is traditionally a darling month for Malaysian equities equities with the KLCI rising in 23 of the last 26 years
• The 5-year historical average return of 2.7% in December suggests the KLCI could end the year at a record high of record high of 1,862
• Maybank, Hong Leong Bank and RHB are our top picks for index top picks for index exposure
Our 10 Malaysia index-linked buy recommendations:
The December effect. As 2013 draws to a close, a window of opportunity has opened for investors to ride on the traditional year-end market rally. December is typically a rewarding month, with the KLCI trending up in 23 of the past 26 years,
including an uninterrupted winning streak over the last eight years. This might be attributed to window dressing activity on book-closing days to show better equities portfolio performance.
BUY now. The 1-month holding period (up till end-Dec) had provided: (a) the largest average return of 4.8% since 1987; and (b) the highest probability (88%) of registering a positive return over the past 26 years. This is followed by holding periods of three weeks up to end-December (with 3.7% average return at 85%probability), and two weeks (with 3.0% average return at 88% probability).
Saving the best for last. If history repeats itself, then Malaysian equities are set to end 2013 with a bang.Based on the 2.7% average monthly return in December since 2008, the year-end hurrah could lift the FBM KLCI to 1,862 (a new record). If the rally turns out as strong as the previous two years (+4.0% in Dec 2011; +4.8% in Dec 2012) the index could close the year at between 1,885 and 1,900. This, in turn, could lift the local bourse ranking to become the top performer in South East Asia this year. It is currently in pole position with +7.3% YTD return (see Chart 2).
List of index-linked BUY calls. DBSV Malaysia has 10 Buy recommendations out of the 30 FBM KLCI component stocks. They are (listed by market cap size): Maybank, Tenaga, Petronas Gas, IOI Corp, Hong Leong Bank, SapuraKencana Petroleum, MISC, RHB Capital, Hong Leong Financial Group and Astro (see side bar for their individual target prices).
Meanwhile, the just concluded earnings reporting season has captured more disappointments than pleasant surprises, with 23% missing their estimates, 65% in-line and only 12% beating our expectations. This has prompted us to tweak our
universe profit growth forecasts to 5.8% (from 7.5%) this year and 9.7% (from 9.7%) next year. Our FBM KLCI targets remain at 1,850 (end-13) and 1,930 (end-14) (Figure2).