Morning Commentary

• STI: +0.07% to 3078.2
• MSCI SE Asia: +0.14% to 845.4
• Hang Seng: -0.09% to 22249.8
• MSCI APxJ: +0.19% to 456.5
• Euro Stoxx 50: +0.44% to 2603.4
• S&P500: +0.33% to 1413.9

MARKET OUTLOOK:

In the weeks ahead, there is unlikely to be any clarity on the market direction until we have a grand bargain with a blueprint (details included) on how the US intends to tackle the impending fiscal cliff. Instead, gyrations are likely to be the new norm -for now. Markets will be on their toes, responding to every single headline on the fiscal cliff negotiations, along with major macro data releases.

The US non-farm payrolls (NFP) will be released this evening (SGP time) and we are expecting Nov NFP to be depressed -and distorted- by the adverse impact of Hurricane Sandy. A lackluster Nov NFP will probably already have been priced in by the markets. Looking ahead, the decline in initial jobless claims last week as well as healthy consumer confidence suggest that any sharp pullback in payrolls during Nov is likely to be transitory and not representative of the broader pace of labour market recovery (though that is still sluggish at best).

STI is in a near-term bullish crossover but we caution that it faces strong resistance at 3100 level which it will need to convincingly clear above in order to march even higher, though that is unlikely to occur any time soon in view of the US fiscal uncertainties ahead.

In Malaysia, despite inching higher in recent days, the FTSE Bursa Malaysia KLCI has broadly retraced from its Oct high of 1679. Near-term major support level is around the 1600 level. As we have guided in our reports, despite buoyant domestic demand, KLCI is hesitant to make higher highs in view of the considerable political risks ahead of the 13th General Elections. Specifically, in the event that the incumbent Barisan Nasional fail to obtain a strong mandate, the Economic Transformation Program and Government Transformation Program -major pillars of the domestic demand story- may be confronted with headwinds. Thus, we maintain our marketweight outlook for the KLCI. Conversely, a strong mandate for BN may lead us to re-visit with an Overweight and enter long positions in DBXT - MSCI Malaysia (LG6:SGX).

Macro Data

In US, initial jobless claims declined by 25,000 wk-on-wk to 375,000 for the week ending Dec 1 as the Northeast region recovers from the adverse impact of Hurricane Sandy. The 4 -week moving average of claims - a less volatile gauge of trend- rose slightly by 2,250 wk-on-wk to 408,000 last week.

In Euro zone, the second estimate for GDP shows that GDP fell by 0.1% q-q in 3q12, after it fell by 0.2% q-q in 2q12. On y-y basis, the region’s GDP fell by 0.6% y-y, compared to a 0.5% y-y contraction in 2q12. Household spending remains stagnant from 2q12, when it fell by 0.4% q-q. Investment fell by 0.7% q-q, after a 1.8% q-q drop in 2q12. Export rose by 0.9% q-q, after a 1.6% q-q gain in 2q12. In Germany, factory orders surged 3.9% m-m in Oct while the market was predicting a 1% gain, after a revised 2.4% m-m drop in September. Despite this considerable October increase, we still do not expect a booming economy ahead due to debt crisis and the austerity measures across the region. ECB announced to hold benchmark interest unchanged at the record low of 0.75%. To boost market confidence, Draghi has reiterated that the ECB stands ready to activate the OMT program as soon as a country like Spain fulfills the pre- requisites of seeking aid from Europe’s bailout fund and signing up to conditions.

In UK, house price index rose by 1.0% m-m in Nov, after it fell by 0.1% m-m in Oct. On y-y basis, the house price fell by 1.3% y-y, compared to 1.7% y-y contraction in Oct. Bank of England officials left their bond-buying program on hold at 375 bn pounds as they assessed the need for more stimulus The Bank of England also left its benchmark interest rate at a record low of 0.5 percent. The continued risks to growth underpin BOE officials’ refusal to tighten policy as inflation, now at 2.7 percent, remains above their 2 percent goal.

In South Korea, the preliminary reading for GDP rose by 0.2% q-q in 3q12, compared to the earlier announced advance reading of 0.6% q-q gain and a 1.1% q-q growth in 2q12. Final consumption growth is adjusted upward to 2.9% q-q from the advance reading of 2.7% q-q. Export growth is also adjusted upward to 11.5% q-q from the advance reading of 10.5%. Preliminary reading for investment reported a drop of 13.5% q-q, faster than the earlier announced 11.2% q-q drop. The bank of Korea is currently holding the benchmark interest rate at a historical low of 2.75% but still has plenty scope for further cut as the inflation reported only 1.6% in Nov, comparing to the government’s 3% target.

In Australia, unemployment rate unexpectedly fell to 5.2% in Nov from 5.4% in Oct, while job participation rate remained unchanged at 65.1%. The improvement in labor market is mainly attributable to the increase in mining industry hiring. RBA Governor Glenn Stevens lowered interest rates by a quarter percentage point this week, bringing to 1.75 points the cuts since Nov. 1 last year as he seeks to revive industries outside mining, where investment is expected to peak next year.

Company Highlights

LionGold Corp Ltd announced that it has entered into an agreement with CitiGold Corporation Limited (“CTO”) to subscribe for 114,285,714 new shares (“CTO New Shares”), constituting approximately 9.23% of the existing issued and paid-up share capital of CTO (being approximately 8.45% of the enlarged issued share capital of CTO after the issue of the CTO New Shares) at a subscription price of A$0.07 (approximately S$0.089, at an exchange rate of A$1.00 to S$1.2763) for each CTO New Share. (S$1.605, unchanged)

Sing Holdings Limited announced that the company has submitted a tender bid of S$162.1 million for the land parcel at Punggol Field Walk / Punggol East (the “Bid”). Based on the provisional tender results released by the Housing & Development Board, the Bid emerged as the highest bid for the tender. Subject to the award of the above tender, the Company will develop an Executive Condominium housing development with a gross floor area of 42,921 square metres on the land parcel. (S$0.405, +2.532%)

Communication Design International Limited announced that the company has entered into a legally binding heads of agreement for the proposed acquisition by the company of the entire issued share capital of Teranova Group Limited from Phoon Wui Nyen as the vendor. (S$0.035, unchanged)

RH Petrogas Limited announced that the company has through its wholly-owned subsidiary, RHP (Mukah) Pte. Ltd., entered into a Petroleum Production Sharing Contract with Petroliam Nasional Berhad (“PETRONAS”) for Block SK 331 onshore Sarawak (the “Block”). PETRONAS is the national oil company of Malaysia and is vested with the entire ownership and control of the petroleum resources in the country. The Company will operate the Block with an 80% participating interest, with the remaining 20% owned by its partner Petronas Carigali Sdn Bhd, the exploration and production subsidiary of PETRONAS. (S$0.420, +1.205)

Source: PhillipCapital Research - 07 Dec 2012