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Market returns expected to be strong in 2H-2021

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“We believe the current pandemic situation may further slowdown the rise in interest rates ensuring the continuity of the low interest rate environment. In addition, the surge in earnings continues to be the major support for equity investments making overall valuations much cheaper. The 1Q2021 earnings rose by an unprecedented 207%YoY building confidence among investors.”

“Despite the significant risk in the system due to the uncertain economic environment, the higher liquidity in the system and cheaper valuations due to healthy earnings, we are upgrading the ASPI fair value for 2021E to a range of 7,500-8,000 from our previous range of 7,000-7,500.”

It amounts to a market return of +18% for 2021E. We recommend holding on to the equity allocation and beginning exiting beyond 8,000. ASPI surged, passing the 8,000 mark for the second time in 2021. “We believe that the fair value for the ASPI stands at 7,500-8,000, considering the earnings that listed companies are generating and the risks in the system due to economic uncertainty. CBSL’s rate hike may also input additional pressure on interest rates adversely impacting equity investments.”

“With the ASPI surging past our estimated range and taking into account the economic uncertainties that exist, we would like to recommend reducing equity exposure to 65% from the current 90% raising cash allocation to 35% from 10%.”

“In our Equity Strategy – Jun 2021, First Capital Research illustrated that the market earnings have increased significantly. However, we also highlighted that considering the risks relating to economic uncertainty and potential rise in interest rates, we are downgrading the target PER to 12.0x-12.5x (previous 14.0x-14.5x). But due to significantly higher earnings, ASPI target range was upgraded to 7,500 – 8,000 while also specifically mentioning to hold on to the equity allocation and begin exiting beyond 8,000.”

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