Published December 17, 2008

Malaysian stocks could slide 17% next year: Citi

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(KUALA LUMPUR) Malaysian equities, one of Asia's top performers, could fall a further 17 per cent in 2009 due to sliding economic growth, and earnings of plantations and banks are at high risk, Citigroup said in a note.

Malaysia's benchmark share index has lost 41 per cent so far this year, but fared better than Southeast Asian peers such as Singapore and Thailand where prices have lost nearly 50 per cent.

'The market has yet to fully discount a potential disappointment in gross domestic product numbers,' analyst Wai Kee Choong said in a strategy note dated Dec 12 and issued on Monday. 'At risk is the first quarter GDP, which could fall sharply before staging a mild rebound in the second half,' he said.

Malaysia's gross domestic product is expected to grow by 3 per cent in 2009, down from a September forecast of 5 per cent, according to a recent Reuters poll, reflecting weaker demand at home and from overseas.

Mr Choong set a new benchmark price-to-book value of 1.2 times - the average for Asia - for Malaysian markets, down from Malaysia's current benchmark of 1.45. This implied a 17 per cent decline in the index to 691 points, he said.

Malaysia's market valuations could easily drop below the low of 1.4 times price-to-book hit during the recession in 2000-2001 recession and corporate earnings growth was set to fall further, Mr Choong said.

'Among the bigger sectors, we see further EPS (earnings per share) downside risks for the plantation and banking sectors if the macro environment worsens,' he said.

Mr Choong advised investors to stick to stocks with high earnings visibility and low price-to-book valuation, such as second biggest lender Bumiputra-Commerce, Tanjong PLC , property firms IGB and KLCC Property. -- Reuters