HSBC expects a medium-term direction of palm oil prices to be underpinned by soft demand, with weak economic growth expectations for major consumers -- China, India and Europe -- capping industrial demand.
The broker cut its fiscal year 2012 average palm oil price forecast by 5 percent to $1,032 per tonne. For fiscal year 2013, it raised the average palm oil price forecast by 2 percent to $994 per tonne.
"Unlike consensus, we believe negative price momentum will prevail going forward," HSBC said in its Asian Palm Oil report.
Extreme weather conditions in major agricultural regions are being reflected in commodities such as soybeans prices, up 46 percent year to date, but palm oil – the closest substitute – has been absent from this rally, falling 5 percent year to date.
"Now with pricing spreads well above normal levels, palm oil will likely see near-term price support. We believe this presents an opportunity to reduce weightings in the sector," it said.
HSBC downgraded Indonesia-listed Astra Agro Lestari AALI.JK to 'underweight' from 'neutral', cutting the target price to 22,000 rupiah from 25,200 rupiah versus Wednesday's stock close of 20,200 rupiah.
Astra Agro had fallen 6.9 percent in 2012, underperforming a 6.6 percent gain of the broader Jakarta's Composite Index .JKSE.
HSBC's key underweight-rated stocks included Singapore-listed Wilmar International Ltd WLIL.SI and Malaysia-listed IOI Corporation Ltd IOIB.KL.
For long-term exposure to emerging market consumption, the broker said it preferred plantations with structural growth, with First Resources Ltd FRLD.SI and Genting Plantations GENP.KL among its overweight-rated stocks.
