Morning Market Commentary

- STI: +0.38% to 3168.4
- MSCI SE Asia: -0.05% to 861.6
- Hang Seng: +0.71% to 22606
- MSCI APxJ: +0.04% to 465.0
- Euro Stoxx 50: +0.11% to 2630.5
- S&P500: -0.41% to 1413.6

MARKET OUTLOOK

Asian markets continue to look fairly positive, the STI’s upside breakout thru a wedge formation that has capped the upside since Oct2010, is over a week old now (see today’s webinar for chart). APxJ index has also convincingly cleared the 450 resistance, the Hang Seng has rallied strongly and the Chinese A-share market (CSI300) builds upon its bottoming signal (MACD bullish divergence in the weekly charts) by trading thru the 2300 resistance.

US markets however traded the other way last week, as expectations of Apple were scaled back and little progress was made on the US fiscal cliff negotiations. Key near term risk for the Asian ascent then remains stalled fiscal cliff negotiations, as markets are building in expectations of a deal before the year is over.

We contend that the best trade in terms of risk-reward remains China (see CN & HK Strategy 23rd Nov, webinar slides last Monday). The A-share market (CSI 300) is coming off a low base and has confirmed a bottoming signal (MACD bullish divergence) in the WEEKLY charts (better than if it was the daily chart). Economic indicators continue to corroborate a turning for the economy, and we also note also that it’s a domestic economy rebound play, and so
more insulated from fiscal cliff tail risk that lurks in the background. Also now that the CSI300 has cleared the 2300 resistance, next stop is the 2500 – consider long with ETF 83188.HK. For the same reasons consider long the FTSE China A50 with Phillip CFD A50.

Looking into 2013, the fact that the STI has finally cracked its wedge formation, 3q12 earnings were not as bad as feared, and Asia’s economic indicators are trending better, are all encouraging signs. We are increasingly positive on stocks 1H13. Main risk is the US fiscal cliff which has already severely damaged investment in the US for much of this year.

SG equity strategist favours Capitaland, SATS and SIAEC.
 

Macro Data

In Singapore, unemployment remained tight on account of healthy domestic-oriented activities as well as more stringent foreign manpower policies. Specifically, seas adj. unemployment rate declined marginally from 2.0% in June to 1.9% in Sept. Separate data release indicate that retail sales rose 0.6% m-m sa while retail sales ex-auto registered an increase of 0.3%. For Singapore, modest economic growth (2 - 3%) and high inflation (domestically-driven) environment might be the new norm as the economy restructures. If not for the tight labour market, the economy would be at risk of stagflation, which is defined as low growth, high inflation and significant slack in the labour market.

In US, industrial output rebounded in Nov, from the disruptions caused by Hurricane Sandy. But stripping out the volatility arising from Hurricane Sandy, output likely remained soft and flat. Specifically, industrial production expanded 1.1% m-m in Nov, reversing from a contraction of 0.7% in the preceding month. On the inflation front, CPI declined 0.3% m-m in Nov (+1.8% y-y), owing to lower energy prices. Well-anchored inflation expectations as well as relatively benign inflation (below the Fed's 2% inflation target) will enable the Fed to focus on its monetary efforts in boosting the economy.

In the Eurozone, private sector activity likely contracted for the 11th consecutive month in December. Specifically, while the flash estimate of the composite EZ PMI rose to 47.3 (the highest in 9 mths), it remain mired in contractionary territory. On the inflation front, CPI remain unchanged at 2.2% y-y in Nov.

In China, HSBC flash manufacturing PMI reported 50.9 in Dec, beating the market expected 50.8 and prior 50.5, continuing the sign of re-acceleration in the nation’s manufacturing business. The government announced to remove the 1 bn USD ceiling on investment by overseas sovereign wealth funds and central banks in its capital market, as part of the government’s effort to shore up the slumping equity market, though other qualified foreign institutional investors (QFII) will still be subject to this limit. During the annual central economic work in Beijing, the leaders had set the tone for 2013 to “pursuing quality and efficiency of economic growth” and expanding domestic demand to aid“sustained and healthy development”. The government committed to “fully deepen reforms” in the economy and “firmly promote opening-up” next year, according to Xinhua, the state-run news agency. The nation will also maintain controls on the property market and increase urbanization. The new leaders may keep its 7.5% GDP growth target for 2013.

In Japan, Tankan large manufacturers index, a gauge for business sentiment, fell to -12 in 4q12, a fifth straight negative reading and the lowest since mar 2010, after the -3 reading in 3q12. The slide in sentiment, together with the earlier announced second quarterlyconsecutive contraction in GDP, may push the central bank for further easing policy during the policy meeting on Dec. 20.
 

Regional Market Focus

Singapore

• The benchmark STI closed higher to 3,168.4 (+0.38%). The 2.1bn shares traded were worth S$1.2bn.
• Majority of the index components closed higher with property counters City Development and GLP among the largest gainers. One of our top picks for the Singapore market, SIA Engineering, was also among the top gainers in the index.
• Kintras Pte. Ltd. announced an unconditional cash offer for the shares in Kinergy Ltd for S$0.250. The offer price represents a 38.9% premium over the last transacted price.
• Our top picks for the Singapore Market are SIAEC, SATS & Capitaland. SIAEC & SATS are yield plays that benefit from strong underlying business trends. Capitaland would be a beneficiary of the stabilisation of property prices and bottoming out of economic conditions in China.

Thailand

• Thai stocks traded in a tight band last Fri. Even though the SET index bounced up to retest 1360, it still failed to break through as sporadic bouts of short-term profit taking kicked in along the way. The SET index finished the session at 1358.50 points last Fri.
• The SET index is expected to remain caught in a bind with limited upside and downside today. The boost will continue to come from foreign buying spree on hopes of additional liquidity from further monetary easing, which put the US dollar on the back foot. Near-term uncertainty surrounding the US fiscal cliff talks may further add volatility to the market. Short-term technical indicators were in oversold territory. On the downside, sporadic bouts of short-term profit taking could weigh after the SET index continued to hit new highs in more than 16 years but the downside also appears limited as end-of-year LTF/RMF buying should lend support to the market except that there may be other major negative factors in sight along the way i.e. failure of the US fiscal cliff talks. Today we expect the SET index to trade in a range of 1350-1367.
• The short-term strategy is to be more selective in stocks.
• Resistance on the main index is pegged at 1360-1367 and support at 1357-1350 today.

Indonesia

• Most Indonesian stocks finished lower Friday (14/12), amidst mixed closes on Asian markets as investors remain cautious with “fiscal cliff” keep seesawing markets. The Jakarta Composite Index slipped 11.326 points, or 0.26%, to close at 4,308.863. The decline included six of the 9 major industry groups, with infrastructure lost 1.72%, agriculture sector fell 1.18%, and mining slipped 1.03%. LQ45, the index trailing Indonesia’s blue-chip index, shed 2.821 points, or 0.38%, to close at 735.883. More than 128 shares fell, 99 shares advanced, and 242 shares remained unchanged Friday on the Indonesia Stock Exchange, where 2.863 billion shares worth IDR 3.934 trillion traded on the regular board. Foreign investors posted net sales worth IDR 14.103 billion in total.
• Indonesian stocks will likely turn lower today, extending losses as global markets declined on fiscal cliff worries. We expect the JCI to trade within 4,266 - 4,343 range.

Sri Lanka

• Market Lost the Momentum on Friday - Colombo market lost the momentum today for the first time in the week, losing its benchmark index (ASPI) by 24.64 points or 0.44% to end the day at 5522.72 after gaining six (6) consecutive market days. More liquid Milanka Index too plunged by 18.76 points or 0.37% for the first time in the week to record 5045.20. Further, S&P SL20 index also slumped by marginal 1.5 points to record 3022.79. Total market turnover stood at LKR 505.4Mn dropped by 28% compared to the previous trading day.Net foreign inflow recorded as LKR 22.8Mn for the day opposing to the recorded net outflows for the last two consecutive days.
• Week at a Glance - The market performance for the week enlarged with a sudden resurge of the all the participatory investor communities, leading the indices to wake up with noticeable appreciations. This was mainly due to the positive response from the investment community to the monetary policy adjustments made by CBSL to cut down policy rates by 25 basis points coupled with the elimination of stipulated credit ceiling from Jan 2013 onwards. This ease off effect further reflected in weekly treasury bill auction too and treasury yields tumbled for two months low level ,recording one year yield falling down by 41 basis points and 6 months yield plunged by 32 basis points. ASPI ended up at 5,522.72 gaining 135.32 points during the week whilst MPI further accelerated to 5,045.20 by increasing 151.58 points.
• A total of 122.15Mn shares were changed hands during the week, which was a 27.78% dip compared to the previous week. Foreign purchases amounting to LKR 1.38Bn outpaced the foreign sales of LKR 1.20Bn during the week, resulting a net foreign inflow of LKR 178.85Mn which was an 81.66% decrease compared to the previous week. The year to date net foreign inflow stood at LKR 36.64Bn at the weekly closure.
• The total market capitalization as at the weekly closure stood at LKR 2.12Tn recording a year to date loss of 4.22%.The market PER(X) and PBV(X) stood at 14.64 and 1.98 respectively at the end of the week.

Australia

• On Friday, the Australian share market closed flat but closed to a 17-month high. Concerns about whether US politicians would reach a debt deal before the end-of-year fiscal deadline offset good news on a continued pick-up in China's manufacturing sector. The ASX200 ended where it started at 4,583.
• Today, the local market is expected to open lower, with the SFE Futures 200 pointing lower 3 points or 0.06 per cent to 4,578.
• A quiet day on the local economic data front with the RBA Assist Gov Debelle Speaking at 11am local time.

Hong Kong

• China’s shares soared more than 4 percent on Friday, as investors speculated that the upcoming economic work conference that will set the tone for China's economic policies in 2013. The benchmark Shanghai Composite Index gained 4.32 percent, or 89.15 points, to 2,150.63. The Shenzhen Component Index closed strong at 8,530.9, up 4.4 percent, or 359.55 points. Combined turnover on the two bourses jumped to 208.23 billion yuan from 98.2 billion yuan the previous trading day.
• Hong Kong stocks rode on the rally of China’s market. The benchmark Hang Seng Index gained 160.40 to 22,605.98 and traded between 22,636.43 and 22,396.72. Turnover totaled 72.35 billion HK dollars, comparing with Thurday’s 62.49 billion HK dollars.
• Technically, the HSI is expected to consolidate at around 22,000 with near term support and resistant at 22,400 and 22,800 respectively.

Company Highlights

Silverlake Axis Ltdannounced that its subsidiaries have secured three new software and services contracts and one ongoing software and services contract expansion totalling approximately RM135 million. These customers are located in South East Asia and Africa. (Closing price: S$0.500, 1.010%)

Sound Global Ltd announced that they have won the joint bid with China Railway 18th Bureau for No.6 Water Treatment Plant Project in Changchun City, Jilin Province, the PRC. Located in Changchun City, Jilin Province, the long-term designed water supply capacity of the project is 500,000m3/ day with the near term capacity at 250,000m3/ day. No 6. Water Treatment Plant Project requires a total investment of approximately RMB2.035 billion, which will be invested, built and transferred as a BT project. The project is expected to commence construction in 2013 and to complete in 2015. The construction of the project will greatly relieve the inadequate water supply problem in Changchun City, and will play an important role in supporting the sustainable development of Changchun City. (Closing price: S$0.560, 0.901%)

CapitaLand Limited wishes to announce the sale of its entire 100% stake in Beijing CapitaLand Xin Ming Real Estate Development Co., Ltd. for a cash consideration of RMB502 million (approximately S$97 million). BCXM, a company incorporated in the People’s Republic of China, owns a residential site under development with gross floor area of 14,364 square metre in Beijing’s Dong Cheng District, PRC. The Sale is made as part of CapitaLand Group’s ongoing strategy of capital productivity. (Closing price: S$3.760, 1.075%)

Source: PhillipCapital Research - 17 Dec 2012