Malaysian stocks, trading near a one-year high, face the risk of an “Edwardian Summer” that may end with a “crash” as shares are overvalued amid shrinking earnings, according to OSK Research Sdn Bhd.
“As with any Edwardian Summer, the longer it lasts, the more out of touch it gets with its fundamentals, and the greater the crash at the end,” OSK said in a report today. “The market is definitely overvalued.”
Investors should sell “into strength” and buy selected shares such as property developer Malaysian Resources Corp and Top Glove Corp, the world’s largest rubber glove maker, OSK said. It removed Public Bank Bhd from its top five picks.
Top Glove, the world’s biggest rubber-glove maker, gained 4.8 per cent to RM7.23 at midday, set for the largest increase since July 7.
The benchmark FTSE Bursa Malaysia KLCI Index rose 9.3 per cent last month, the steepest increase since April. The measure has risen 34 per cent this year, as the government’ stimulus plans and a RM10 billion fund set up to invest in publicly traded companies helped buoy the market.
Prime Minister Datuk Seri Najib Tun Razak, who took office on April 3, has announced stimulus plans valued at RM67 billion to revive economic growth.
OSK likened the market’s outlook to the “Edwardian Summer” in the UK during the reign of King Edward VII from 1901 to 1910. The Edwardian era was regarded as a romantic golden age of long summer afternoons, garden parties and big hats immediately prior to the First World War.
The stock index is trading above 17 times 2009 earnings, higher than the average of 15 times since 2000, OSK said. Companies in the index were trading at 15.5 times in 2006 and 2007 when earnings growth was averaging 30 per cent growth, it said.
With earnings set to shrink in 2009 and grow at only 12 per cent in 2010, the current price to earnings multiple is “excessive,” it said. -- Bloomberg
“As with any Edwardian Summer, the longer it lasts, the more out of touch it gets with its fundamentals, and the greater the crash at the end,” OSK said in a report today. “The market is definitely overvalued.”
Investors should sell “into strength” and buy selected shares such as property developer Malaysian Resources Corp and Top Glove Corp, the world’s largest rubber glove maker, OSK said. It removed Public Bank Bhd from its top five picks.Top Glove, the world’s biggest rubber-glove maker, gained 4.8 per cent to RM7.23 at midday, set for the largest increase since July 7.
The benchmark FTSE Bursa Malaysia KLCI Index rose 9.3 per cent last month, the steepest increase since April. The measure has risen 34 per cent this year, as the government’ stimulus plans and a RM10 billion fund set up to invest in publicly traded companies helped buoy the market.
Prime Minister Datuk Seri Najib Tun Razak, who took office on April 3, has announced stimulus plans valued at RM67 billion to revive economic growth.
OSK likened the market’s outlook to the “Edwardian Summer” in the UK during the reign of King Edward VII from 1901 to 1910. The Edwardian era was regarded as a romantic golden age of long summer afternoons, garden parties and big hats immediately prior to the First World War.
The stock index is trading above 17 times 2009 earnings, higher than the average of 15 times since 2000, OSK said. Companies in the index were trading at 15.5 times in 2006 and 2007 when earnings growth was averaging 30 per cent growth, it said.
With earnings set to shrink in 2009 and grow at only 12 per cent in 2010, the current price to earnings multiple is “excessive,” it said. -- Bloomberg
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