OSK Strategy and Outlook (Oct 2011)

We still feel that there is downside to the KLCI although with non-GLICs supposedly close to maximum cash levels and GLICs supposedly not aggressively supporting the market up till now, further downside maybe somewhat less than our recession market bottom of 1086 points.

OSK: Normalised performance of September’s top stock picks

With Budget 2012 (to be announced on this Friday 7th Oct) around the corner, OSK has no major expectations of the budget except that it will probably be people friendly and include:

1. No further tightening of regulations with regards to the property sector which should be positive for property stocks
2. No hike in Brewery Tax which will be positive for Carlsbergy and Guiness
3. A 4.5 - 6.8% hike in Tobacco excise duties which will be mildly negative for BAT and JTI
4. A likely hike in Civil Servants salary as the last hike was in 2008 which will be positive for MBSB

OSK: Defensive Top 10 Buys

OSK remain defensive for now with expectations of a further drop in the KLCI although they do not see it dropping to our recession bottom of 1086 points. Given the volatile market conditions, it is difficult for us to forecast when the KLCI may fall past the 1300 points level although a break below is possible in October itself. As such, our recommendation is no longer "time-based" but rather "level-based".

For now, with 1300 points still some 6% away from current levels, we remain NEUTRAL on the market with our call still focused on Defensive stocks. A fall below the 1300 level will likely prompt us to upgrade our call on the market to a BUY.

OSK: Top 5 picks for the month of October 2011

With 3 of Top 5 Buys in September outperforming the KLCI and given the significant market uncertainty remaining, OSK keep its Top 5 Buys intact for October. Axiata, Petronas Gas, TM and KPJ are undoubtedly defensive stocks while selling may yet abate on foreign darling AirAsia with profit prospects improving as oil price drops. Aggressive Bottom Fishing is only recommended once the market breaks below 1300 points with names such as Genting, Parkson and Dialog coming to mind then.

Source: OSK Research