Pick of the fund managers

FUND managers believe that the stock market is poised for further upside next year as cheap money continues to flood the market supported by real economic growth. Granted, the ride will not be an entirely smooth one.

While liquidity is a good thing, too much of it will lead to inflation and asset bubbles .

The market may also experience bouts of volatility caused by the ongoing financial mess in Europe as markets and economies are closely linked.

Here are the views of some of the experts on what we can expect from the local stock market in 2011.
Danny Wong
Chief executive officer
Areca Capital

Outlook: Barring unforeseen circumstances such as geopolitical risks, contagion effects of sovereign indebtness and a double-dip recession in the Western economies, I would like to think that the economies will continue to improve, particularly in this part of the World, and thus the stocks should reflect the real growth in earnings.

With better earnings, huge global liquidity and improved risk appetite, most stock markets should achieve an impressive upside and it will not be surprising if we are to experience a potential bull run.

Concerns/challenges: The major risks are a possible double dip recession caused by deteriorating consumption spending due to high unemployment rate in the West, worsening global imbalance with widen savings/deficit gaps continuing to affect the currencies, carry trades which might increase financial risk, sovereign bankruptcy and over-reacting by major economies (e.g. US' excessive quantitative easing or China over-tightening of its policies).

Stock/Sector picks: We continue to invest in large caps blue-chips such as CIMB, Genting, Maybank for their strong management team, cashflow and exposure to regional and international business operations. We also like those sectors which can leverage on a global economic recovery within the next 2 years and benefit from domestic economic growth plan such as the Economic Transformation Programme (ETP) and specific stocks for merger and acquisition (M&A) activities.

Gan Eng Peng,

Head of equities
HwangDBS Investment Management

Outlook: For the last 2 years, economic and therefore market outlook fluctuated almost every six months from double dip to European crisis to liquidity rallies to inflation.
We expect 2011 to continue to confound investor expectations. As of now, we are bullish for 2011.

The conditions that drove a strong 2010 is going to continue into early 2011. These include ample money in the system, a continued belief in a genuine global economic recovery, still palatable valuations and heightened M&A activities.

The government-engineered private investment cycle via its ETP is gathering momentum. The amount of positive news that bought us to a new high in 2010 should continue into early 2011.

Challenges/concerns: Thailand is going for a general election in the first half of 2011. Malaysia is also slated for one soon. Investors might look at this as an opportunity to lock in profits as elections inevitably increases uncertainty of business and policy continuity.

There is a lot of foreign hot money in our market due to the cheapness of money. Hence, the currency is strong, our government debt pricing is high and the stock market is elevated. If the cost of borrowing these monies were to rise due to inflation, monetary tightening or better returns' alternative elsewhere there could be a big exodus out of this region. Given the low liquidity of our markets, its impact could be severe.

Stock/sector picks: With economic recovery, corporate spending tends to pick up as companies fret less about economics and worry more about sales and market share.

Hence, advertising expenditure naturally picks up as the economy picks up steam.

One of our top stock picks for 2011 is Media Prima, a media investment group due to its dominant position in free-to-view TV broadcast, Malay medium newspapers and outdoor advertising.

Again, on the back of global economic recovery, spending on information technology (IT) will increase and investors should be exposed to IT stocks like Unisem .

In particular, Unisem has very a strong pipeline of Chinese business with their new plant in China.

Thomas Yong
Chief executive officer
Fortress Capital Asset Management 

Outlook: Despite holding the view of slower economic growth in 2011, we think the stock market should continue to do well, on the back of strong liquidity arising from quantitative easing in the developed economies.
In addition, the market's valuations are not demanding, trading at 15 times 2011 earnings.

Apart from external factors, we expect the Government's ETP to progress further, providing some positive news flow to the market and lifting sentiments.

Concerns/challenges: Having said that, we think that market should experience some degree of volatility, directed by swings in foreign flows, in reaction to news flow such as inflation and fear of potential capital controls by some of these emerging Asian economies to curb hot money flows.

Stock/sector picks: As a proxy to the economy, we think that the banking sector should do well. Apart from improving asset quality, loans growth is also expected to be healthy, supported by high savings and resilient consumer sentiment. Furthermore, government infrastructure projects should pick up, providing support to loans growth.

In year 2011, there should be further hikes in the Overnight Policy Rate, which should help to raise net interest margins of banks.

We also like the plantations sector as a proxy to rising commodities prices amid a weak US dollar.

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