Malaysia Stock Market Review for Week Ending 15-August-2008

As expected in last week's forecast, the KLCI drifted lower this week. The benchmark index shed -25.26pts (-2.3%) led by extended selling down of banking and plantations stocks. Bumiputra Commerce (CIMB Bank) loss -95sen (-11%) after the bank reported weaker than expected profits and subsequently guided this year's net profit target downwards due to poor sentiment in the economy. Sime Darby, the world's largest plantation stock was down -35sen (-5%) on the back of declining palm oil prices. Stock market participation remain stubbornly thin despite the emergence of good value in selected stocks.

Some of our clients had asked if the stock market were to go back to 1997 or 2001 level. In our, the recurrence is most unlikely due to the stronger position that Malaysian corporates are now standing. In the yesteryears, Malaysian corporate had not exercised prudence in their capital structure, corporate debt levels were high, companies' valuation were lofty and future business prospects were pretty much in the air and not water tight. These days, it seems Malaysian corporate are more resilient and should weather through small economic shocks. Corporates in general have moderate debt levels and their capital structure are largely intact from the last round of restructuring post the 1997 Asian crisis. So we believe any slowdown in the economy will not result to sequential corporate blow-ups and corporates to belly up easily. So, we conclude the risk profile to invest in Malaysia stock market is safer than ever before.

Since newsflow continued to stay dry and scarce, we will just keep future updates short and sweet. As for stock under our watch list, MRCB is still on our list but he had dropped AirAsia this week.

Strategy: We expect the market to drift lower this week (60% chance), 30% chance to stay unchanged (+/-5pts) and only 10% chance of bouncing up. Bear in mind that all eyes are on corporate results reporting this month as they conclude their second quarter performance. Already we can see 2 out of 4 banks had guided their outlook downwards (ie. Bumiputra Commerce (CIMB Bank) and AMMB (AmBank)).

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