CIMB Strategy – Market Outlook – Beyond the 2010 looking glass

We introduce our end-CY11 index target of 4,249, set at 16x CY12 P/E, which is about a 10% premium to the markets mid-cycle valuations, while maintaining our end-CY10 index target of 3,430, bottom up and implying 15x CY11 earnings. Our Overweight position remains premised on: 1) earnings-growth estimates of 19% and 15% for FY11-12, with upside potential; and 2) room for moderation in the market risk premium, at 8% presently. On the other hand, near-term risks are: 1) inflation (whether it would subside or spike again); and 2) 3Q10 earnings (whether they can live up to expectations). Our sector picks remain consumer and infrastructure-related.