OSK Says Malaysian Stocks Face ‘Wild Ride’ on Earnings, Economy

By Chan Tien Hin

March 2 (Bloomberg) -- Malaysia’s stocks are in for a “wild ride” this month, said OSK Research Sdn., after the economy expanded at the slowest pace in seven years in the past quarter and companies reported weaker-than-expected earnings.

“We see a lot of uncertainties in March,” OSK analysts Chris Eng and Loke Siew Ting wrote in a report today. The market “appears overpriced and is ripe for a sell-down,” they said.

Companies from casino operator Genting Bhd. to AirAsia Bhd. reported losses in the final quarter of 2008 while Malayan Banking Bhd., the biggest bank, and TM International Bhd. last week said they are seeking a combined 11.3 billion ringgit ($3 billion) from shareholders to boost capital as the worsening global recession erodes earnings.

Malaysia’s central bank last week cut borrowing costs for a third time in consecutive meetings, saying the risk that the economy will shrink in 2009 has risen. The government is preparing to announce a stimulus package on March 10, after saying Feb. 27 gross domestic product grew 0.1 percent in the fourth quarter from a year earlier.

“Corporate news was largely disappointing,” the OSK report said. “Overall, we saw more than 50 percent of the companies under our coverage having their earnings downgraded.”

Malaysia’s benchmark Kuala Lumpur Composite Index slumped 2.1 percent to 872.09 as of 12:21 p.m. local time, set for the biggest decline since Nov. 6. The measure climbed 0.7 percent last month.

The gains last month resulted in the stock index becoming “substantially more expensive than most bourses in the region,” OSK said.

‘Buying Interest’

Malaysia’s stocks are priced at 11.7 times current-year earnings estimates, compared with 9.6 times for Singapore, 9.1 times for the Philippines, and 7.5 times for Thailand, according to data compiled by Bloomberg.

“We see buying interest resuming” ahead of the stimulus package to be announced on March 10 and the party elections by the United Malays National Organization, OSK said, referring to the governing political party. Still, “there is a risk of a sharp sell-down” toward the end of the month after stocks outperformed other regional markets in February, limiting the “upside,” it said.

To contact the reporters on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net