The FBMKLCI is fast approaching our year‐end
target of 1,680. Before its recent correction, it recorded a new all‐time
high of 1,647.94. We also saw the consensus upgrading the FBMKLCI Index target
from 1,705 (22 June 2012) to 1,726 (27 July 2012). However, contrary to our
earlier expectations, the inclusion of IHH Healthcare (“IHH”, Not Rated) had a
negligible impact to FBMKLCI. In fact, it was mildly disappointing as the
consensus index target would actually fall slightly to 1,722 from 1,726 (the
consensus index target with the old constituents). Nonetheless, our optimistic
view remains unchanged as we believe the domestic market is still pretty much supported
by strong liquidity, fuelled by foreign net inflows. Additionally, we also
believe that the trend of dividend yield compression has yet to reach its peak
as the current dividend yield is still below the 3‐year
average low. Due to our cautiously optimistic view, we continue to believe in “Buying
on Dips” for the quarter should any weaknesses emerge, to position ourselves
for the coming stronger 4Q12 and 1Q13.
Thus far, the FBMKLCI Index has advanced approximately 2.0%
in the past 1 month to 1,631.6, and is fast approaching our year‐end
target of 1,680. Before going into its recent correction, it recorded a new all‐time
high of 1,647.94. We also saw consensus upgrading the FBMKLCI Index target from
1,705 as of 22 June 2012 to 1,726 as of 27 July 2012. The best performing
sectors in the past 1 month were Consumer (+7.8%) and Aviation (+4.8%) as well
as Telcos (+4.4%). On the flip side, the worst performing sectors within
FBMKLCI were property (‐4.3%), utilities (‐2.9%) and Gaming (‐2.7%).
In the past 1 month, we also notice the following trends:
Trend No 1:
Foreigners have been aggressive buyers since end‐September
2011 while local investors remain the main sellers. In fact, the former was
still net buyers even in the last 1 month (since 29 June to 31 July 2012)
despite a weakening of the ringgit. We estimate that foreign investors have accumulated
RM3.1b worth of shares, which saw a new high in the accumulated foreign net
buying position of RM11.6b since 26 September 2011.
Trend No 2: In
the past 1 month, we also saw the trend of a “flight to defensive/dividend”
stocks continues to be the prime investment strategy. This can be seen from the
outperformance of the Consumer, Telco and REIT sectors against the FBMKLCI in
general. With such strong performances, there was no surprise that the dividend
yields from these stocks had compressed significantly. While the investment
community have concerns over the ability of these sectors to further
outperform, we reckon that there is still room for them to sustain their outperformance.
This is because the current estimated dividend yields of these stocks have yet
to reach their 3‐year average lows individually.
Trend No 3: With
the listing of IHH on 25 July 2012, we see a potential rerating in the
healthcare sector. This expectation is also reinforced by the fact that IHH
will be included into the FBMKLCI constituent list (with a 30% investability
weightings) by replacing MMC Corporation (“MMC”, OP, TP: RM3.11) via a fast‐track
inclusion. However, contrary to our earlier expectations, the inclusion of IHH only
had a negligible impact on the FBMKLCI. In fact, it was mildly disappointing as
the consensus index target for FBMKLCI would actually fall to 1,722 from 1,726.
This could be due to the out performance of IHH from its IPO price of RM2.80. As
such, we believe that in order to outperform the index, investors should
consider other healthcare stocks. We believe most of the pharmaceutical and
glove stocks are still likely to play catch‐ups in their share prices as
their valuations are still below IHH and KPJ despite their comparable or even
more superior ROEs.
Source: Kenanga
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