Malaysian stocks expected to edge upwards

Malaysian stocks expected to edge upwards

M. Jegathesan, Agence France-Presse, Kuala Lumpur

Stocks in Malaysia are expected to edge upwards in the months
ahead due to favorable economic conditions as U.S.-led foreign
investors selectively snap up blue-chips, analysts said.

Lee Soo Kai, economist with local brokerage OSK Research Bhd.,
believes the Kuala Lumpur Stock Exchange Composite Index could
hit 760 points by the end of the year. It closed on Friday at
681.57.

Lee attributed the strong market outlook to a low interest
rate regime, abundant liquidity and modest economic recovery
spurred by a recent stimulus package.

"Economic catalysts that drove the South Korea and Thailand
markets the past year are showing up in Malaysia," he said.

"Low interest rates, ample liquidity and easy credit will
drive the Malaysian equity market as they did for South Korea and
Thailand."

Discounting critics who have predicted the market surge would
not last long, Lee said macro ingredients were in place for
Malaysia to keep "the party" going.

The bourse has rallied 9 percent from a month ago and 7
percent since the 7.3 billion ringgit (US$1.92 billion) economic
stimulus package was announced on May 21.

Lee said there was general agreement in the market that the
government's stimulus package reflected a shift in focus to
building strong domestic demand and channeling funds to under-
utilized small and medium industries.

"This change in perception is precisely the catalyst needed to
put the idle liquidity into work in the equity market," he said.

Lee said he had adopted a cautious view of the economic
outlook late last year but was now confident that the negative
impact from the Iraq war and the Severe Acute Respiratory
Syndrome outbreak had subsided.

"We, however, still believe that economic numbers (coming) out
in the second and third quarters will continue to be
disappointing owing to the hangover from the war and SARS," he
said.

"Nonetheless, the sky is always darkest before dawn and we
believe that a large part of the bad news has already been
discounted by investors."

Deputy Prime Minister Abdullah Ahmad Badawi said on Friday:
"Although, at one stage, there was uncertainty over our economic
performance due to the effects of the war in Iraq and SARS, I
believe the second quarter will register positive growth."

Gan Kim Khoon, head of AM Research, a local brokerage company,
said disappointing first-quarter earnings coupled with sharp
share price rises for some stocks had resulted in more "take
profit" opportunities than "buy" recommendations.

Investors, he said, should identify "laggards" that are also
backed by strong fundamentals with cheap valuations.

Such stocks included Malayan Banking, Maxis Communications and
Hong Leong Bank, he said.

Another analyst with a local brokerage said the pick-up in the
U.S. economy was drawing U.S. investor interest to the
underweight Malaysian bourse.

"Foreign funds, particularly from the U.S. are eying blue-
chips stocks in the banking, auto, telecommunication and gaming
companies," he said.

"This run-up is sustainable. It is not being just boosted by
the stimulus package. The economic fundamentals are sound and
with SARS waning and U.S. economic recovery, we will see a long
rally."