MARKET OUTLOOK

Yesterday morning we said that the STI, HSI, and S&P500 have all moved to within distance of resistance lines of 3000, 22000, and 1420 respectively. The momentum and trend for the short term looked positive, but we caution the resistance lines. HEADS UP now on possible near term selling.

The STI gapped up to close higher at around the 3000 mark, but the body of the candle is not long enough to imply that it will continue to slice higher, especially as the S&P500 & HSI are looking to stall. Chief warning shot is the dollar index now at near term support. Better to take gains off the table and wait and see. HSCEI and CSI300 long trade are also not working so we think it’s a wait and see for short term trading at the moment.

So HEADS UP. Markets we think, will now likely expect details of how this fiscal cliff will be resolved. Though much fanfare about compromise has been touted post presidential elections, the devil is now in the details. We’re hopeful but expect some chest thumping on both sides congress to gyrate the markets.

Tonight also sees new capex orders in the US, which is expected to be a slight sequential contraction as business investment sentiment is likely to remain blunted till the fiscal cliff gets resolved, plus some fallout from Hurricane Sandy. A negative number will only add to what could be near term bearish sentiment.

On the investment climate, we are getting increasingly constructive going into 1H13 - underlying macro conditions see the rate of slowdown in Asia easing and China bottoming. The US is mixed in our opinion – housing recovery (good), consumption subsidised by savings (mixed), investment sentiment crushed by the fiscal cliff uncertainty (bad). But if a political compromise is reached on the fiscal cliff, a rebound in investment could be catalytic for markets.

SG equity strategist favours Capitaland, SATS and SIAEC.

Macro Data

In US, manufacturing activity -as indicated by the Chicago Fed National Activity Index (NAI)- slumped to the lowest level since 2009. Specifically, the 3mma of NAI declined to -0.56 in Oct, from -0.36 in the preceding month owing to the adverse impact of Hurricane Sandy. We wish to remind readers that amid lingering concerns over the looming fiscal cliff, the broad trend for capex new orders is still down.

In Singapore, manufacturing output bounced up 3.3% m-m sa in October, reversing from three consecutive months of contraction. Ex-BMS, manufacturing output rose 2.3% m-m sa. However, manufacturing sector is still rather soft, the broader trend (%y-y 3mma) is still inching lower. Specifically, the electronics cluster - which accounts for around a third of total manufacturing output- continued to decline by 9.1% y-y 3mma in Oct, compared to 8.9% in the preceding month. Looking ahead, Singapore’s electronics has been -and will continue to remain lacklustre at best -especially since it is geared towards the production of PCs (where demand has been sluggish) instead.

In Thailand, exports rose 15.6% y-y in October. While it translates to a marked pace of acceleration (Sept: 0.2%), the pace of export growth was still less than expected in view of a low base effect (arising from last year’s floods). Notwithstanding sluggish external demand which has continued to weigh on exports, we expect the Bank of Thailand to stand pat when the monetary policy committee next meets on Wed in view of resilient domestic demand (as reflected by robust imports of capital goods which is reflective of investment demand).

In Italy, consumer confidence slumped 1.4 pts m-m to register a reading of 84.8 in Nov- a record low- as the ongoing EZ sovereign debt crisis continued to weigh on consumer sentiment.

In South Korea, consumer confidence reported 99 in Nov, bottoming out from the 9 month low of 98 in Oct. The Bank of Korea cut borrowing costs twice this year to 2.75% and the government boosted spending within its budget to support the economy. A separate report showed that people expect inflation of 3.3 percent over the next year, within the range of between 2.5 percent and 3.5 percent that the central bank is targeting for the next three years. This compares to 2.1% inflation in Nov.

Company Highlights

Far East Orchard Limited said it has signed a non-binding memorandum of understanding (MOU) with The Straits Trading Company Limited to explore the proposed acquisition of STC’s entire hospitality management business (which includes the trade mark rights to the “Rendezvous” and “Marque” brands). STC’s hospitality management business currently operates hotels in Singapore, Australia, New Zealand and China. As part of the proposed transaction, STC will have the right to subscribe up to 20% of the share capital of the enlarged hospitality management company of FEOrchard. Under the MOU, FEOrchard will also be exploring a proposed acquisition from STC and/or its subsidiaries of a 50% interest in three hotels in Australia, namely Rendezvous Studio Hotel Perth Central, Rendezvous Grand Hotel Melbourne and Rendezvous Hotel Perth. (S$1.850, -1.070%)

KEPPEL Telecommunications and Transportation (T&T) said that it will jointly develop and operate a Chinese cold-chain logistics park in Lu'an City, Anhui Province, to serve the fast-growing food-processing industry there. The 33-hectare Keppel Wanjiang International Coldchain Logistics Park (Anhui) will be 60 kilometres west of Hefei, Anhui's capital, and will serve the central China region that includes Anhui, Henan, Hubei, Hunan and Jiangxi. The Lu'an project will begin operations at the end of 2014. A wholly owned Keppel T&T subsidiary holds 60 per cent interest in the JV company, with the rest held by the Lu'an City Jin'an District Government and "private investors including but not limited to" Chinese conglomerate Anhui Zhuxin Group. The JV will have a registered capital of 180 million yuan (S$35.3 million), of which Keppel T&T's share is 108 million yuan. (S$1.285, -0.388%)

Source: PhillipCapital Research - 27 Nov 2012