Market overreaction present buying opportunities

The local stock market overreaction over the upcoming 13th General Election (GE13) would present buying opportunities for investors, says MIDF Research.

Yesterday, the FBM KLCI reacted negatively to market talk that Prime Minister Datuk Seri Najib Razak may soon seek consent from the Yang di-Pertuan Agong for the dissolution of Parliament as early as this week.

If it turns out to be true, the GE13 will most probably be held by March 2013, MIDF said.

However, it said, investors may have overemphasised on the election consequence as the research house views the likeliest of results is that the status quo would remain.

"Hence, this presents an opportunity to investors with risk tolerance and who share a similar view," it said in a research note today.

MIDF has reiterated its view that the construction sector will revert to its valuation after the GE13 as its current undemanding valuation should be an attractive proposition for investors.

"While local market performance may temporarily decouple from the rest of the region, it would soon re-track the broad regional trend direction, based on our past empirical analysis record.

"Even after the arguably watershed GE12 results, the local benchmark continued to broadly track the regional trend direction," the research firm said.

MIDF also expressed confidence that the on-going government projects would not be renegotiated, postponed or scrapped, saying any party that wins the election mandate would honour the sanctity of contracts.

"The negative repercussion of unilateral amendment or, worse still, cancellation of awarded projects will be tremendous especially from the viewpoint of foreign investors.

"Besides, most of the on-going major infrastructure projects have been awarded on an open-tender basis," it added.

Meanwhile, Kenanga Research said it was not surprised to see the sell-down on the FBM KLCI yesterday as historically, GEs typically bring uncertainties to the market.

However, it said, based on Bursa Malaysia trade statistics, foreigners had sold only a net RM1.8 million worth of equity even with the sell-down.

"This is against the market expectation that the foreign investors have already started to unwind their positions to reduce their exposure in equity owing to the so-called political risk," it said.

The research firm said its view remains unchanged although it was hoping earlier for any sell-downs to occur at around the 1,700 level.

"Based on our technical reading, we believe that the immediate floor is at the 1,610 or 1,600 level and 1,575 and 1,560 next," it said in a separate note today.

In view of the GE13 concerns and uncertainty, Kenanga said it believes the mainstream investment choices are still the names with high-dividend yield and those that have consistently delivered positive returns.