Morning Commentary

• STI: +1.13% to 3045.9
• MSCI SE Asia: +0.84% to 841.2
• Hang Seng: +0.99% to 21922.9
• MSCI APxJ: +1.03% to 449.9
• Euro Stoxx 50: +1.37% to 2581.7
• S&P500: +0.43% to 1416.0

MARKET OUTLOOK:

US equity indices gyrated during the trading session but closed higher. Republican House Speaker Boehner expressed concern that there was no substantive progress on the fiscal cliff negotiations, implicitly rejecting Obama's opening bid in budget negotiations. Specifically, the White House -in its formal opening bid- is seeking US$ 1.6 trillion in tax hikes and will concede $400bn cuts in Medicare and other areas. Noteworthy, Obama has signalled that he will not insist a return to Clinton-era tax rates for the wealthy.

In the weeks ahead, we expect markets to turn jittery, responding to every single headline on the fiscal cliff negotiations. Gyrations are likely to be the norm rather than the exception - unless we have a grand bargain with a blueprint (details included) on how the nation intends to tackle the impending fiscal cliff. With the year drawing to a close and talks being inconclusive at this juncture, will brinkmanship prevail? While one month might be too short to iron out fundamental differences between the Democrats and Republicans, a deal could still possibly be struck by the end of this year on preliminary measures or framework of deficit reduction to avert the cliff , leaving most of the heavy lifting -overhauling the tax code and healthcare entitlement - to 2013.

Even if equities might retrace lower in the near term, a major sell-off is unlikely at this juncture (unless the US economy fails to avert the dreaded fiscal cliff) as markets are expecting some form of a deal by Christmas and markets do not want to miss out on the rally if the grand bargain materialises. So over the next few trading sessions, we could see the S&P 500 (SPX) flirting with the 50dma resistance level -which it will need to convincingly clear to go even higher.

Meanwhile, at home, the STI gapped up during yesterday’s trading session, presenting a ‘window of opportunity’ for near-term trading -provided US fiscal budget negotiations continue to remain constructive and the bears don’t overwhelm the bulls & close the breakaway gap (formed to the upside). Thus, we suggest to long (with tight stops) Straits Times Index SGD5 CFD (STI) and Singapore Index SGD20 CFD (SMSCI).

Macro Data

In the US, 3Q12 real GDP was revised upwards from 2.0% (adv) to 2.7% (2nd est.) q-q saar on the back of upward revisions to exports and private inventories, which offset -to some extent- downward revisions to consumption spending and non-residential investment. On the labour front, unemployment claims declined 23,000 wk-on-wk to 393,000 for the week ending Nov 24, as the effect of Hurricane Sandy subsided. Meanwhile, pending home sales rose 5.2% m-m to 104.8 in Oct - the highest since 2007.

In the EZ, economic sentiment rose 1.4 pts m-m to 85.7 in Nov, after 8 consecutive months of contraction.

In Hong Kong, retail sales value grew by 4.0% y-y in Oct, slower compared to the 9.4% y-y growth in Sep. Retail sales volume rose by 3.6% yy, compared to 8.5% y-y gain in Sep. The bolstering effect of China’s bottoming out toward Hong Kong’s economy is still likely to be very limited in the near term.

In South Korea, manufacturers’ sentiment fell to 67 for Dec, from the Nov reading of 70, marking the lowest level since April 2009, as gains in the won threaten to slow a rebound in exports.

In Japan, total store sales fell by 1.7% y-y in Oct, compared to 3.6% y-y drop in Sep. Retail sales fell by 1.2% y-y, compared to 0.4% y-y gain in Sep. Wholesale fell by 1.8% y-y, compared to 4.9% y-y drop in Sep. The government will announce a second round of stimulus today, tapping about 1 trillion yen ($12.2 billion) in reserve funds. The plan would follow about 750 billion yen of stimulus announced last month.Japan’s economy may fall into a recession in the three months ending December, based on the definition of a recession as two consecutive quarters of contraction.

In Australia, new home sales rose by 3.4% m-m in Oct, the first monthly gain in 4 months, after the 3.7% m-m gain in Sep. led by apartments, indicating the central bank’s interest-rate reductions are luring buyers. A separate report shows that the nation’s business investment rose by 2.8% q-q in 3q12, after it advanced 3.4% q-q in 2q12. The RBA Governor Glenn Stevens held the key interest rate at 3.25% this month, having cut the benchmark five times since embarking on a series of reductions in November 2011 as the country’s resource boom cools. He said in minutes of the meeting that “further easing may be appropriate.”

Company Highlights

Tat Hong Holdings Ltd announced that it has incorporated an indirect 100%-owned company, Tat Hong Industrial Properties Sdn Bhd in Malaysia. THIP will have a paid-up capital of RM$1 million (approximately S$400,000) and will be the vehicle which the Company intends to use for the acquisition of two plots of land totaling approximately 9.9 acres in Iskandar, Malaysia, which is planned to be developed for multipurpose industrial use and for investment purposes. The incorporation of THIP is not expected to have a material impact on the earnings per share and net tangible assets per share of the Company for the financial year ending 31 March 2013. (S$1.400, +2.190%)

KTL Global Limited announced that it has secured approximately US$9.3 million worth of orders from two subsidiaries of Ezra Holdings Limited. The first order from EMAS Offshore Construction and Production Pte Ltd is to supply approximately US$3.2 million worth of mooring chains and accessories, and the second order from Triyards Marine Services Pte Ltd is to supply approximately US$6.1 million worth of side thruster and shaft, and reduction gearbox propellers. These orders are expected to contribute to the financial performance of the Group for the year ending 30 June 2013. (S$0.130, -8.451%)

Singapore Technologies Engineering Ltd announced that Singapore Test Services Pte Ltd (STS), a wholly owned subsidiary of its land systems arm, Singapore Technologies Kinetics Ltd (ST Kinetics), has divested its entire 49% equity stake in Nusantara Technologies Sdn. Bhd. (Nusantara) to Nusantara’s other existing shareholder for an aggregate consideration of S$1,590,500. This consideration was arrived at on a willing buyer, willing seller basis taking into account the value of the net tangible assets of Nusantara. Nusantara is a service provider in the test and inspection field, with experience in the Oil & Gas industry in Malaysia. The divestment is a result of ST Kinetics’ on-going review of its business direction and rationalisation exercise to streamline ST Kinetics’ portfolio of subsidiaries and associated companies. (S$3.620, +1.117%)

Source: PhillipCapital Research - 30 Nov 2012