Investors indecisive despite global rally

By JAGDEV SINGH SIDHU

KUALA LUMPUR: The rally in global stock markets has stretched valuation levels and that has left some experts scratching their heads.

Indices in Europe are at a multi-year high and the surge in stocks has left investors wondering on their next course of action.

“Nobody knows what is going to happen next,’’ said Aberdeen Asset Management managing director Gerald Ambrose.

A rally in global markets, which was temporarily held back by the A (H1N1) flu, has seen valuations surge across the board.

Investors check shares prices at a private stock market gallery in Kuala Lumpur. The benchmark Kuala Lumpur Composite Index crossed the 1.000-point barrier on Monday. - AP

The rally in Europe in April, according to a Bloomberg report, had pushed market valuations on the Dow Jones Stoxx 600 Index to their highest levels in more than four years and investors had seen an end to the current global recession.

That wave of optimism has not been lost on stocks on Bursa Malaysia and has seen the benchmark KL Composite Index (KLCI) cross the 1,000-point barrier on Monday. The index closed flat at 1,008 yesterday.

Trading volumes in April, when the stock market really picked up steam, crossed the one billion mark on April 10 for the first time this year. Volume crossed the two billion level on April 27.

Another indicator that volatility globally has declined and the rally might have more legs to run is the drop in yields in long-term bonds in the United States. The decline in yields is seen as another indicator that the end of the current recession is getting close.

In the process of an optimism-fuelled current rally, the valuation of stocks on Bursa Malaysia has risen and is now at 12.84 times on earnings expectations for next year. Based on data from Bloomberg, the KLCI is trading at a current price-to-earnings valuation of 14.28 times.

“People are in a dilemma whether to chase stocks or not,’’ said a fund manager.

Part of that indecision lies in valuations prior to the market meltdown last year, which one analyst feels was not too far from the current forward valuations.

Nonetheless, experts say there is still value in the market depending on where you look.

“Some of the blue-chip stock valuations are high but, for the second-tier and mid-cap stocks, they are still cheap,’’ said Jupiter Securities head of research Pong Teng Siew.

Ambrose said stock picking should be based on companies and not the index, and he felt that betting on growth stocks might not be the most prudent investment decision at the moment.

He said price-to-earnings ratios were unreliable now and preferred to look at the price-to-book value of a stock.