CITI Investment Research expects the benchmark Kuala Lumpur Composite Index (KLCI) to fall by another 18 per cent to 691 points, as earnings per share (EPS) growth expectations continue to fall amid the uncertain market.
"With the macro risk rising, the market could fall below the 1.4 times price-to-book ratio (P/B) it hit during the 2000-01 recession ... taking a more cautious approach, we are now using our benchmark the average Asia P/B of 1.2 times - implying a further decline to 691 points," Citi Investment Research said in its report last Friday.
The research house expects the bear market to hit the bottom as early as the first quarter next year.
"In three of the last four recessions, the bear market ended in or immediately after the worst quarter of GDP growth. Our economist forecasts GDP to bottom at around two per cent in the first quarter 2009, down from 2.6 per cent in the fourth quarter of 2008. If history repeats itself, first quarter 2009 is the earliest the market could bottom," it said.
It also revised downwards its projections on EPS for 2009. Companies in the utilities sector are expected to see a 23.7 per cent decline in EPS, banks (-8.3 per cent), telecoms (14.4 per cent), plantations (-20.6 per cent) and tobacco (-10.5 per cent).
"Be they cyclical or defensive, stocks trading at trough P/Bs or have strong earnings visibility are on our top buys list - AMMB, BCHB, IGB Corp, KLCC Property, Tanjong plc and IOI Corp. Our top sell ideas are Public Bank and Maybank," it added.
KLCI bottom at 691? My God! How did they manage to come out a figure so precise? The market is consist of thousands of buyers/sellers, does that mean everyone will decide that 691 will be the bottom for 2009? What should be the price for the components (TM, PBBank, Genting etc) so that we will exactly hit 691?