Morning Market Commentary

- STI: -0.06% to 3156.8
- MSCI SE Asia: +0.24% to 862.4
- Hang Seng: -0.08% to 22494.7
- MSCI APxJ: +0.24% to 463.9
- Euro Stoxx 50: +0.59% to 2643.5
- S&P500: +1.15% to 1446.8

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

In the US, the S&P 500 and DJIA surged from the opening bell and closed near their respective intra-day high. The risk-on mood takes into account the following positive developments:

(i) In the US, a silhouette of the fiscal budget deal is forming with negotiations turning constructive. Recent reports indicated that Obama was possibly looking at raising the threshold of tax hikes to those earning US$400k, a big concession from the US$250k threshold that he put forth during his presidential campaign. This follows Republican House Speaker John Boehner conceding for the first time the possibility of tax increases (for those earning more than US$1m) in exchange for controls on spending entitlements.

(ii) In the EU, tail risk of a 'Gre-exit' has receded significantly. Greece's sovereign debt was upgraded (by S&P) by 6 notches to B- with a stable outlook from Selective Default.

(iii) China's leadership emphasis on proactive (expansionary) fiscal policy, coupled along with prudent monetary policy.

Notwithstanding Samsung's withdrawal of a key Apple lawsuit in Europe, we are doubtful of a major inflection (up) for Apple Inc (AAPL :Nasdaq) yet. The test of support level on 17 Dec failed and subsequently the stock bounced up from over-sold levels. Hope you were not caught in that bear trap. Nonetheless, in view of the intact 'death cross', we look to enter trading shorts if the AAPL breaks below the head and shoulder neckline of 520-530 again. Though, if you have shorted since the huge sell-off on 05 Dec, it might be advisable to take some profits from these existing short positions now from a trade management perspective.
 

Macro Data:

In US, the housing market recovery continues to gain traction, which probably also received a boost from re-construction efforts following Hurricane Sandy. Specifically, the NAHB survey’s headline rose 2 pts to 47 in Dec.

In India, the Reserve bank of India stood pat - maintaining the policy repo rate at 8% and cash reserve ratio at 4.25% in Dec (consistent with our expectations) as price pressures remain elevated on the back of a hike in the price of subsidized diesel in Sept. However, we opine that if the government succeeds in addressing some of the structural growth constraints and inflationary pressures ease in the coming months, the RBI is likely to review its monetary stance and consider cutting rates (probably in Jan 2013) to stimulate growth.

In UK, inflation stayed at 2.7% in Nov on higher food price and utility costs, the same level as it was in Oct. Core inflation remained at 2.6% in Nov, the same as in Oct. PPI unexpectedly fell by 0.2% m-m in Nov, while the market was predicting a 0.2% m-m gain, after the 0.1% m-m gain in Oct. Over the year, PPI advanced 1.4% y-y, the same pace as in Oct.

In China, property price reported accelerating growth in Nov, with 53 out of the 70 major cities seeing monthly increase in new apartment price, which compares to 35 in Oct. Over the year, 25 cities saw yearly growth in new apartment price, compared to only 12 in Oct. Following the two benchmark rate cuts in June and July, the market saw continued rebound in property transaction and in property price. The Nov data is likely to have reached the upper limit of government tolerate, therefore shut the window of monetary loosening. We expect the government to take actions to maintain a tame property price. A separate report showed that FDI in China fell for a 12th time in 13 months, registering a 5.4% y-y drop in Nov, suggesting the nation’s economic bottoming out has yet to attract influx of investment from abroad.
 

Regional Market Focus

Singapore
 

• The benchmark STI was little changed at 3,156.8 (-0.06%). The 2.5bn shares traded were worth S$1.4bn.
• Among the index components, Olam International was the best performer with an increase of 5.74%. Prior to today’s market opening, Aranda Investments Pte. Ltd., a unit of Temasek Holdings, announced that it had acquired another 200k shares in Olam International.
• 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
 

• Volatility reigned supreme in the Thai stock market on Tue. The SET index rose early in the session but gains were later pared by profit-taking, dragging the market down by more than 10 points at one time before late bargain buying helped limit losses with the main index finishing the session higher by 3.85 points.
• The market’s optimism that the deal to avoid the looming fiscal cliff seemed to be appearing on the horizon put downward pressure on the US dollar but it helped increase risk appetite. Such positive sentiment is expected to cheer up the market in the near term while foreign investors continued to ramp up buying of equities and also turned net buyers of derivatives. However, investors should keep a close watch on the fiscal cliff talk development until the deal is struck. Under this circumstance, the SET index is likely to trade into the upside but extreme volatility appears to reign the market on the cliff headlines in the near term. The index is expected to trade in a range of 1356-1370 points.
• The short-term strategy is to be selective in stocks. We advise investors to look for laggards relative to peers/broader market and focus on year-end spending plays in associated with new income tax structure. Domestic consumption-linked stocks which will benefit from the new income tax scheme include personal loan, hire-purchase loan, credit card, retail and etc.
• Today we peg resistance for the SET index at 1366-1375 and support at 1356-1348.

Indonesia
 

• Most Indonesian stocks declined Tuesday (18/12), despite higher closes on Asian markets after reports of progress in US budget negotiations. The Jakarta composite index shed 14.421 points, or 0.33%, to close at 4,301.436. Agriculture sector led declines that included seven of the 9 major industry groups with 1.09%-loss, trailed by construction sector with 1.06%-decline, and infrastructure sector with 1.03%-drop. Blue-chip stocks were also mostly lower, with the LQ45 index that tracks them trimmed 1.812 points, or 0.25%, to 735.745. More than 92 shares advanced, 160 shares fell, and 218 shares remained unchanged Tuesday on the Indonesia Stock Exchange, where 3.427 billion shares valued at IDR 4.346 trillion traded on the regular market. Foreign market participants posted net purchases worth IDR 77.279 billion in total.
• The Jakarta composite index is likely to go up today, as further progress in US budget talks may bolster sentiments in Asia. We anticipate the composite index to trade with support at 4,246 and resistance at 4,357.

Sri Lanka
 

• The Colombo Bourse concluded the second trading day of the week entering in to positive territory again. The Benchmark ASPI stood at 5,507.79 gaining 4.28 points and liquid MPI closed the day at 5,039.30 increasing 27.40 points. S&P SL20 Price Index also gained 10.18 points and ended the day at 3,019.62. The market capitalization for the day stood at LKR 2.12Tn recording a year to date loss of 4.42%. The day’s turnover stood at LKR 2.59Bn and 80% for that came from the recorded crossings. Health Care (LKR 1.83Bn) and Bank Finance & Insurance (LKR 409.97Mn) turned out as the best performers under the sectorial summary.
• The total traded volume for the day amounted to 35.28Mn shares; this was a 30.75% Increase against the previous trading day. A net foreign inflow of LKR 140.08Mn was recorded during the day for the second consecutive trading day of the week. Further; this extended the year to date net foreign inflow to record LKR 36.88Bn.

Australia
 

• The Australian share market closed higher on Tuesday, but falling back from intraday levels akin to the peaks of 18 months ago. At the close on Tuesday, the benchmark S&P/ASX200 index was 21.8 points or 0.48 per cent higher at 4,595.2.
• Today, the local market has opened higher amid signs US politicians are willing to compromise to avoid the world's largest economy falling off the fiscal cliff. The SFE Futures 200 is pointing upwards 16 points or 0.34 per cent to 4,618.
• On the local economic data front we have the Westpac/ MI Leading Index month over month (December) at 10:30am local time.

Hong Kong
 

• China’s shares continued its rally but momentum was weakening. The benchmark Shanghai Composite Index gained 0.10 percent, or 2.12 points, to 2,162.46. The Shenzhen Component Index dipped 0.81 percent, or 69.44 points to 8600.33.
• The Hong Kong stocks were mixed. The benchmark Hang Seng Index lost 18.88 to 22,494.73 and traded between 22,588.48 and 22,449.74. Turnover rebound to 118.23 billion HK dollars, comparing with Thurday’s 64.44 billion HK dollars. However, the rebound was merely due to the placement of AIA Group (1299.HK).
• Technically, the HSI is expected to consolidate at around 22,000 with near term support and resistant at 22,300 and 22,700 respectively.

Morning Note

Company Highlights

Ezion Holdings Limitedannounced that the Company has entered into a subscription agreement dated 18 December 2012 with EDB Investments Pte Ltd, pursuant to which the Subscriber shall subscribe for 14,269,620 new ordinary shares in the capital of the Company. Subject to the terms and conditions of the Subscription Agreement, the Subscriber shall subscribe for, and the Company shall allot and issue, 14,269,620 Subscription Shares for the consideration of S$18,999,999.03, representing an issue price of S$1.3315 per Subscription Share. The issue price represents a 10% discount to the volume weighted average price of S$1.4794 for trades done on the shares of the Company on the Singapore Exchange Securities Trading Limited on 14 December 2012 (being the preceding market day) up to the time the Subscription Agreement was signed. (Closing price: S$1.555, 3.322%)

CNMC Goldmine Holdings Limitedannounced that it has made a pour of 2,326.83 ounces of fine silver on-site in Malaysia at the Sokor Gold Project. This on-site production is in addition to the 58,335.38 ounces of silver produced in China from the mineral ores exported during the second and third quarter of this financial year, revenue of which had been duly recognized and reported in the respective quarters. The focus at the Sokor mine site is now to increase gold production. The next phase of exploratory drilling has also commenced. This on-going exploratory drilling programme is expected to expand the resource and reserve potential at the Sokor Gold Project and any new reserve discovery will increase the production rate and/or extend the mine life of the project. (Closing price: S$0.310, 0%)

Hiap Seng Engineering Ltdannounced that its 85%-owned subsidiary, Nasco-Hiap Seng Engineering Co Ltd has been awarded a contract worth approximately THB652 million (approximately S$26 million) for the provision of Structural Steel Fabrication for an LNG Terminal Project in Australia. The fabrication work is expected to commence in Thailand in the last quarter of the financial year ending 31 March 2013 and scheduled for completion by May 2014. (Closing price: -, -)

SMRT Investments Pte Ltd, a wholly-owned subsidiary of SMRT Corporation Ltd, announced that it has won the joint bid with Alphaplus Investments Pte. Ltd., a wholly-owned subsidiary of NTUC Fairprice Co-operative Limited, for the Sportshub Pte Ltd’s Retail Project. Under the Sub-Lease, Sportshub will lease the Retail Area to SMRT Alpha for a term of twelve years commencing from the date on which the Retail Area is fully commissioned and ready for commercial and retail operations or activities. Under the Retail Contract, SMRT Alpha shall manage and operate the Retail Area for a term of twelve years, unless the Retail Contract has been otherwise earlier terminated in accordance with its terms. (Closing price: S$1.685, -0.296%)

Source: PhillipCapital Research - 19 Dec 2012