Market liquidity likely to remain supportive: Kenanga

PETALING JAYA: Market liquidity is expected to remain supportive, at least in the first half of this year, according to Kenanga Research.
A liquid market is one with a high level of trading activity.
"Our market view remains unchanged. Despite the less exciting sectorial outlook, we still believe that the underlying liquidity position should remain supportive in the first half of 2014 for the local market, with a decent upside," Kenanga Investment Bank Bhd senior vice president and head of research Chan Ken Yew said in a report yesterday.
In addition, with a healthy correction from its peak of 1,882.2 points in early first quarter of 2014, the research house also anticipates that market valuation has improved.
"As analysts have started to roll over their valuation base years from 2014 to 2015, we have employed a higher target price-earnings ratio (PER). The year-end target of FBM KLCI has been fine-tuned from 1,890 points to 1,930 points, implying a PER of 18.3 times in 2014 and 16.7 times in 2015.
Kenanga Research's revised index target is not far from the consensus index target of about 1,940 points, and it is backed by the forward earnings growth rates of 13.3% and 8.7% for 2014 and 2015, respectively.
"For the second quarter of 2014, we prefer a buy on weakness strategy with a revised ideal level of 1,815 points and below. While the upside from here is decent at about 4%, investors still have to be very selective in sector targeting and stock picking," said Chan.
"This is because the outlook of most of the sectors under our coverage has become less exciting, especially post the recent results reporting season," he explained.
So far, Kenanga Research has 'overweight' calls on construction, gaming, gloves, oil and gas, plantations, property and power utilities sectors.
The research house has also placed emphasis on export-orientated sectors, including gloves, shipping and semi-conductor, to capitalise on the potential trend of further weakening in ringgit against the greenback, taking into consideration heightened capital outflow arising from stronger expectations of rising interest rate in the US.
For downside risk, Kenanga Research foresees a quiet trading period from June to July this year, due to the fasting month and FIFA World Cup.
The research house also does not rule out a more challenging and uncertain scenario in the second half of 2014, mainly due to less certain monetary policy direction in both the domestic market and the US.