KUALA LUMPUR: After the battering for the local stock market in recent weeks, investors will be bracing for some selling pressure in the week ahead, starting Monday, Sept 26 especially after the FBM KLCI fell to its lowest since mid-August last year.
Concerns for the investors include whether the selling, especially from foreign funds, has eased, especially for fundamentally strong companies. More than 100 stocks closed at their worst for 52 weeks last Friday.
Last Friday, the KLCI lost 1.58% or 21.87 points to 1,365.94. Year-to-date, the KLCI is down 10.07%. It is the fourth worst performing market after the Philippines, Thailand and Jakarta which fell 7.50% YTD, 7.11% and 7.48% respectively.
The bigger regional markets have slumped between 15% for Singapore and 23% for Hong Kong’s Hang Seng Index.
Affin Investment Bank’s head of retail research Dr Nazri Khan said he believed the KLCI could see more negative headwinds in the week ahead on growing fears over the global economy following negative comments from the US Federal Reserve and more evidence of fiscal weakness across Europe.
He pointed out the bad inter-market technical picture with traditionally bearish October looming ahead.
“We must caution investors that the FTSE All-World has already declined by 23.2% since its May 2011 peak (14 months low), putting the global stocks in the officially defined bear market,” he said.
Nazri said with the FBM KLCI below its 1,400 strong psychological support (to its low since May 2010) and FTSE All World is now firmly in a bear market with China Shanghai Composite Index, NYSE Composite Index and Germany Dax Index scoring a fresh 52-week low, he believes the traditional June-August summer rebound have ended.
“The high probable forecast next few weeks is clearly down with September and October living up to its reputation as one of the market's most bearish months of the year,” he said.
Nazri said the clearest sign that global economy is loosing momentum can be seen from Hong Kong and Singapore exchanges, which are considered most opened and most sensitive to global economic growth.
Both Hang Seng Index and Strait Times Index have tumbled 28% and 20% respectively (to their lowest level since July 2009 and June 2010).
His concerns were more rating downgrades expected next week following Moody's Investors Service’ downgrade of the credit ratings of US and French banks.
"On the local front however, we are expecting some positive surprise in the Budget 2012 to cushion the weaker external economies. Some anticipated measures such as fiscal incentives to attract foreign talent, liberalisation in healthcare and education and fiscal support for GLC on international collaboration are likely budget elements to boost the local market,” he said.
Overall, Nazri said despite the positive news on the home front, he retained his cautious view in the near term. He advised conservative clients to stay defensive with deep-value-high-yield-blue-chips while aggressive clients to short index futures.
Meanwhile, stocks to watch in the week ahead are SP SETIA BHD , MALAYAN BANKING BHD , BANDAR RAYA DEVELOPMENTS BHD  (BRDB) and TENAGA NASIONAL BHD . Oil and gas companies would also provide buying interest, especially fundamentally strong counters which were affected by foreign selling.
However, investors should take a long-term view of the market, based on Malaysia’s stronger economic fundamentals and strong banking system while the Budget 2012 proposals could provide temporary respite.
SP Setia is expanding its landbank in Australia with an investment of RM81 million for its second property project in Melbourne with an estimated gross development value of RM772 million (A$250 million).
Its unit SP Setia International Ltd had signed a contract of sale with Portbridge Pty Ltd to acquire the 2.23 acres of freehold land in the South Yarra suburb in Melbourne
Investors’ interest could also focus on Maybank, a heavyweight in the 30-stock index, which fell 41 sen to RM7.99 on concerns that it could face a derating risk. Its decline, which saw RM3.06 billion wiped out from its market capitalisation, dragged the KLCI down by 7.10 points.
Credit Suisse Asia Pacific/Malaysia research, had in a recent report on Malaysia, said there appeared to be growing investor concerns about a possible repeat of the 2008-2009 global financial crisis (GFC).
It said while a repeat of the 2008-2009 GFC was not our base case, it assessed the vulnerability of the banks if it was to see a US double dip and debt crisis in Europe.
To gauge the downside risk for the banks, three key measures which it focused on were valuation comparison with GFC lows; foreign shareholding levels compared to GFC lows and earnings resilience during 2008–09 GFC period.
Credit Suisse research said that by comparing the current valuations to the 2008–09 global financial crisis (GFC) lows, within its own coverage, Maybank and CIMB appeared most vulnerable to a de-rating risk. Stocks with the least downside risk are Alliance (only stock trading below GFC P/E) and Public Bank (P/E at only 5% premium to GFC level and lowest P/B premium to GFC level).
“Moreover, we believe that stock prices of potential acquisition targets such as Alliance, RHB and Public should be more resilient,” it said.
In terms of foreign ownership risk, it said CIMB was the most widely held banking stock among foreigners. Banks that have seen the largest increase in foreign ownership since the GFC are CIMB (+8.7 percentage points to 36.4%), RHB (+8.4 ppercentage points to 13.6%), Maybank (+2.7 percentage points to 13.5%) and Hong Leong Bank (+0.9 percentage points to 8.0%). On the other hand, foreigners have reduced holdings in Alliance Financial Group, AMMB and Public Bank since the GFC.
Meawhile, among the other two stocks to watch would be Bandar Raya Development Bhd and Tenaga Nasional Bhd.
News reports said BRDB had been asked to disclose the beneficial owner of a 23.6% block of shares in the property development company. The report said Bursa Malaysia had asked BRDB to disclose the owner of the stake, especially after BRDB’s plan to sell its assets to its major shareholder.
Tenaga could also see trading interest on concerns about the current gas supply shortage, high fuel costs and the weakening of the ringgit against the US dollar.
Stocks which would see their dividends going ex the week ahead are MISC BHD  and Malaysian Marine Heavy Engineering Bhd (MMHE). MISC’s final 10 sen dividend tax exempt and MMHE’s final single tier dividend of five sen will go ex on Monday. NCB’s interim dividend of seven sen single tier will also go ex on Monday.