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oomFinance
- Round Table Forum
January 18, 2001
11:00 AM - 12:30 PM
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Stock Picks For 2001
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PYL: The consensus outlook seems to be that 2001 will be a really tough year for world
financial markets. If you agree with this, what level do you think the local bourse will bottom
out at? Will there be a late recovery in the second half of this year?
TKK: You have to look at the global scenario, especially at the interest rate environment.
Last year, technology stocks took center stage, while we seem to be focusing on interest rates
this year. Looking at the 50 basis points cut in the US, we will probably see more rate cuts
which will come earlier than expected. Another 100 basis points cut is expected. If there is
going to be a hard landing, [Alan] Greenspan still has some room to cut interest rates, maybe up to
another 200 basis points. That is on the monetary level. Under the Bush administration, a tax
cut could also cushion a recession. All these scenarios will definitely have an impact on
Malaysia, but more so on the more interest rate sensitive countries like Hong Kong and
Singapore. As you are probably aware, Malaysia is a bit different. We actually did pretty well
in the early part of last year, and were probably one of the best performing markets in the
world. Then suddenly we got bashed down, and by the end of the year, saw quite a massive
outflow of foreign funds, and that triggered the selling and souring of sentiment. However,
foreign outflow seems to have tapered off now. The consensus seems to be that foreign funds
probably have up to 3% invested in Malaysia, which is very meager. So there won't be a lot of
selling from here on, because it is so under weighted now. I haven't seen any foreign house
that is presently bullish on Malaysia, but valuations have come down significantly, from
60-80% of their highs, and this includes even blue chips. We are very close to the bottom,
although the index is not a good indicator of the market. If you take away the top three stocks,
you will see a different index. Probably, the Emas index would be a better gauge then the KLCI.
I think that is limited downside risk.
NAZ: Our view is more or less the same, that this year will be a tough year. We don't
expect the US to actually crash land though. We see some respite in that the government is well
aware of the conditions and rate cuts are inevitable. These two factors will mitigate the
effects of a slowdown. So it is comforting to us to have the view that the US will not crash.
But Malaysia is not just about external factors. We are still being bogged down by all those
sentiment and event driven local factors, which continue to affect the general perception and
activities of investors. To that extent, we have some reservations about what can be done. Our
view is that we are quite close to the bottom of the market and we don't think that the downside
is very much more. So there are some opportunities for those investors who are taking a long
term view of the market. There will be some form of recovery, but bear in mind that our
interest rate cycle is different from the one in the US.
So US interest rate cuts may not
directly affect us, but could improve other factors like sentiment.
 PKB: I agree with the previous two views, that the global scenario has a lot to do with
where Malaysia is headed. As you know, our economy is more or less dependent on our exports and
the bulk of exports go the US, especially electronics. Obviously with a US slowdown, our
exports will be affected and will impact our growth forecast for the year. The government has
already lowered its GDP forecast for the year to about 5.8% and there are even some investment
houses saying that that is too generous. If you look at the market locally, the market always
looks ahead, for example the scenario early last year when the index was about 1000, a lot of
bullish reports were published. Then when results started coming in the second and third
quarters, earnings downgrades filtered into the market, resulting in valuations being expensive
and selling pressure. Looking at 2001, we will hit another results season soon, and that is
another watch point. Already, a lot of analysts have lowered their forecasts on certain key
stocks. We have to wait to see how the results are when they are reported and watch out for
surprises, especially on the downside. It will be a little tricky going ahead, and you may
get another round of downgrades. But if you were to move ahead, maybe closer to 3Q 2001,
you'll see people start looking at 2002 again. Then there may be some opportunities for
upgrades. In terms of the index, I agree with Mr Tan that the index is not a true reflection
of the market because of the weighting of Tenaga, Telekom and Maybank. This has caused the
index to be artificially high. Going ahead, it is a bit difficult to place a target on the
index, although I would say that the downside risk isn't very much, maybe 10-15% at the most.
The upside is certainly a lot more, especially if the stocks are being re-rated.
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