Merrill recommends specific stock picking

By Chong Pooi KoonPublished: 2010/01/27

MERRILL Lynch Wealth Management, which rates China and Hong Kong as its top markets for stocks this year, says it sees limited upside potential for Malaysian shares although selected companies like rubber glove makers can outperform.

"We think Malaysia is rather fully valued, so the strategy has to be specific stock picking," its chief investment officer for Asia Pacific, Stephen Corry, said in a media interview in Kuala Lumpur yesterday.

He said banks with exposure to the improving capital market activities as well as rubber glove makers are likely to perform this year. He did not name the stocks due to the bank's policy.

Merrill Lynch, now a unit of Bank of America following a merger, believes that overall, stocks and commodities will give better returns than bonds and cash this year.



A muted recovery in developed economies will lead to low core inflation and steep yield curves this year, acording to Merrill Lynch.

In contrast, rising longer-term interest rates will make government and corporate bonds less attractive.

"Retail investors are pursuing two strategies as we can see. They believe there could be deflation, so they bought fixed income, specifically A-grade corporate papers. They also thought there could be inflation, that's why they like emerging stocks and commodities.

"People are buying inflation and deflation but they are not buying low inflation and equity, so that's where we see opportunity. That's part of reasons why we think the MSCI All-Country World Index could reach 350 this year, roughly 15 to 20 per cent upside," Corry said.

The combination of huge policy stimulus from governments, a steep yield curve and low volatility are factors that contribute to its bullish view on shares.

Merrill Lynch likes stocks from Europe, Asia as well as emerging market consumer shares.