Malaysia's KLCI should find support at 1,660: Maybank Research

Published: Thursday August 29, 2013 MYT 10:49:00 AM 

Updated: Thursday August 29, 2013 MYT 10:51:54 AM

KUALA LUMPUR: After the FBM KLCI lost 124 points or 6.8% from the high of 1,810 that it hit on July 24 on foreign money outflow, the question now is: Will it continue to tumble to the 800-plus level during the global financial crisis of 2008?

According to Maybank Research, this is not likely.

"We do not expect the KLCI to revisit the 11 times PER (price-earning ratio) level as the external situation is different today with global macros improving, compared to a recession brought on by the global financial crisis.

"Using past experience as a guide, (we think) the KLCI should find support again at 13-plus times PER (14 times = KLCI 1,660), as more values will emerge," it said on Thursday.

Maybank Research pointed out that foreign holding is lower today at less than 24% compared to 26%-27% in the 2007-2008 period. However, it said Malaysia's macroeconomic balance was far from ideal with current account balance the quarter ending June at just RM2.6bil and government debt-to-GDP ratio among the highest in South-East Asia.

At the end of last year it was at 53.5% and moving towards 55%.

"Positively, the government's budgetary balance improved with a smaller deficit of 1.9% of GDP in 2Q13 (1Q13: -6.4% of GDP), bringing deficit in the first half to 4.1%, tracking its 4.0% target for 2013," the research house said.

It added that domestic fiscal reforms would re-instill confidence.

"We take the view that this will be acted upon in the 2014 National Budget, and possibly as early as next week following the Fiscal Policy Committee meeting," it said.

"Resumption of the subsidy rollback suspended since mid-2011 will be a key feature. At the same time, we expect the government to review and reprioritise some infrastructure and real estate projects like the KL-Singapore high-speed rail, southern (Gemas-JB) double track rail and government land developments in the KL CBD to avoid a further strain on its balance sheet (including guaranteed debts).

"These projects may be stretched over a longer implementation timeline or deferred for the time being. While we do not foresee the Goods and Services Tax (GST) coming on board next year, we will be on the lookout for more clarity on its implementation timeline," it said.

The research house said it expected real GDP growth of 4.5% for 2013 on the assumption of a mild improvement in external demands, lifting exports and commodity prices. For 2014, it is forecasting a growth of 5.2%.