JP Morgan bullish on the Malaysian stock market

JP Morgan executive director of equity research Mak Hoy Kit sees the FBM KLCI continuing to trade in 2013 at a price earnings ratio of 15 times, with single-digit growth.

He said that while the broader market and index might be more muted in 2013, selective sectors would be outperforming, particularly those that were strongly correlated with domestic demand. He has a 2013 gross domestic product target of 4.5 per cent and a currency target of 2.95 ringgit against the US dollar.

Mak’s bullishness on the domestic sector is backed by the fact that domestic demand’s contribution to GDP is increasing, while net exports are decreasing. Private investments are also on the rise compared to government investments. As of the third quarter, private investments made up 22.9 per cent of GDP versus 22.4 per cent for government investments.

“We think staying in apolitical growth stocks with visible domestic drivers will generate outperformance. Post elections, we would advise clients to trade out of the defensive stocks such as the telecommunications, banks and consumers, into the more under-performing domestic-driven growth sectors like construction, oil and gas, property, gaming, media and selected banks,” Mak said.

“In addressing the fiscal deficit, we feel there will be subsidy cuts and a broadening of the tax base. We see personal and corporate tax rates coming down, while the Goods and Service Tax being eventually introduced after the elections. The net effect is that consumers will have higher disposable incomes and this will further bolster domestic resilience,” he added. 

On interest rates, JP Morgan expects the overnight policy rate to hold through the first half of 2013 at 3 per cent, while inflation will rise to 2.2 per cent from 1 to 1.5 per cent currently.