Morning Market Commentary

- STI: +0.06% to 3158.6
- MSCI SE Asia: +0.43% to 866.1
- Hang Seng: +0.57% to 22623.4
- MSCI APxJ: +0.39% to 465.7
- Euro Stoxx 50: +0.42% to 2654.7
- S&P500: -0.76% to 1435.8

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

We are approaching the Mayan Apocalypse (21st Dec) with great trepidation. Well, 21st Dec (Fri) is the last Friday before lawmakers typically break for the festive (Christmas-New Year) week and serve as a sign post of how Congress will act (though the calendar marker is still Dec 31st). On account of the continued political gridlock over the fiscal budget deal, markets -the S&P 500 and DJIA- slumped from the opening bell and closed near their respective intra-day low.

At this juncture, we are still seeing political posturing and will have a high noon on the Republican's 'Plan B'. While Republican House Speaker John Boehner conceded the possibility of tax increases (for those earning more than US$1m), Obama was looking at raising the threshold of tax hikes to those earning US$400k (from US$250k but still lower than the House Republican's threshold). Furthermore, there is also disagreement on the extent of spending cuts.

Following the 6 notch upgrade of Greece debt from Selective Default to B- with a stable outlook, the perception is that the tail risk of a 'Gre-exit' has receded significantly. But we expect Greece’s problems to resurface in 2013 on account of : (i) Greece possibly failing to adhere to the conditions of the rescue package, which will result in Greece being ineligible to receive further aid; (ii) Even if Greece managed to meet the Troika’s demands, the bail-out could be in question if Greece contracts more-than-expected in 2013, resulting in an upward revision on expectations of Greece’s financing needs (iii) While the bailout program will reduce Greece’s debt to 128% of GDP by 2020, it will still be higher than the IMF’s target of 124 %. Even at 124% milestone, it merely was where it was at 2010; will Greece’s debt be sustainable?

The STI has been testing the 3150 support level a couple times. If the index decisively breaks this 3150 support level, clients can consider entering short positions (with tight stops) on Straits Times Index SGD5 CFD (STI) and Singapore IndexSGD20 CFD (SMSCI).

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. Though housing starts declined 3.0% m-m sa to 861,000 saar, housing permits ( a proxy for future construction) surged 3.6% to 899,000 saar (multi-year high) in Nov.

In Malaysia, inflation remained benign at 1.3% in Nov, similar to the pace registered in the preceding month. Looking ahead, we expect Bank Negara Malaysia (BNM) to continue to stand pat, maintaining the Overnight Policy Rate at 3%. Amid a global slowdown as well as persistent external downside risks, we might have been tempted to forecast a rate cut to mitigate the growth downside given the benign inflation context. However, in view of the impending elections as well as resilient domestic demand, we maintain our view that BNM will continue to stand pat till after, and re-assess its policy rate position post-elections (barring any extreme deterioration in the global macro environment).

In Euro zone, Germany’s business confidence index rose for a second month in Dec, reporting 102.4, compared to 101.4 in Nov, indicating an improving business climate. The gauge for the current situation slipped to 107.1 from 108.1, while the gauge for expectations rose to 97.9, the highest since May, from 95.2 in November. Italy’s industrial sales fell by 0.2% m-m in Oct, a second straightly monthly fall after the 4.2% m-m drop in Sept. Domestic orders fell by 1.0% m-m, a second straight monthly fall, after the 3.6% m-m fall in Sept while Overseas orders rose by 1.5% m-m, after a 5.3% m-m drop in Sept. The ECB revised down its economic forecasts for the euro region earlier this month, predicting contractions of 0.5% this year and 0.3% in 2013. The Bundesbank also lowered its growth outlook for Germany, anticipating expansions of 0.7% for 2012 and 0.4% for 2013.

In UK, BOE policy makers voted 8-1 to leave the bond purchase program on hold in Dec as the inflation remained high at 2.7% and the immediate risks from Euro zone receded. The central bank is likely to hold the benchmark interest rate at the record low of 0.5% for the near future.

In Japan, total export volume fell by 7.5% y-y in Nov, marking a sixth consecutive y-y fall, after the 8.1% y-y contraction in Oct. Total import volume fell by 0.9% y-y, compared to 1.1% y-y drop in Oct. On m-m basis, export and import volume rose by 0.3% m-m and 2.3% m-m respectively in Nov, after the 2.9% m-m and 9.7% m-m drops in Oct. Trade deficit reported 868.5 bn Yen, compared to 624.3 bn Yen in Oct. A separate report shows that the nation’s all industry index rose by 0.2% m-m in Oct, after the 0.4% m-m fall in Sept. The recent decline in Yen helps improve the nation’s export outlook in 2013.

In Taiwan, the central bank leaved the benchmark interest rate unchanged at 1.875% for a six straight meeting amid signs of improving growth and tame inflation. Export, which makes up about 2/3 of Taiwan’s GDP, is likely to get support from the recovery of China. The government forecasted the GDP to expand 1.13% in 2012 and 3.15% in 2013.

Regional Market Focus

Singapore

• The benchmark STI was little changed at 3,158.6 (+0.06%). The 3.3bn shares traded were worth S$1.5bn.
• Olam International continued its uptrend to gain 4.4% after an announcement of an increased in stake by Temasek Holdings prior to market opening. There was a balance between the gainers and losers on the index with gainers, 3 unchanged and 10 decliners.
• 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 stabilization of property prices and bottoming out of economic conditions in China.

Thailand

• The Thai stock market continued its upward move on Wed amid positive sentiment in regional markets and on optimism that the deal to avoid the looming fiscal cliff will be struck any time soon. Banking, retail and construction materials stocks led the market’s advance.
• Gains in the Thai stock market continued to be driven primarily by foreign buying on optimism that US budget deal could be reached before the end of this year to avert a fiscal crisis but fiscal cliff talks however turned sour after House Speaker John Boehner, the top Republican in Congress said in a one-minute press conference that his chamber will pass a proposal that US President Barack Obama had already threatened to veto as it spared many wealthy Americans from tax hikes needed to balance the budget. US fiscal cliff negotiations are still worth watching closely. From now on, market volatility is set to rise as the clock ticks toward a year-end fiscal debacle. Even though expectations are a battle over the US budget will be resolved by year-end deadlines, what remain to be seen are details about the extent of the impact on the US economy. However, the increasing alternate bouts of foreign buying and selling in derivatives markets may somewhat dampen buying sentiment in equities market. Overall we expect the SET index to trade in a range of between 1370 and 1385 today.
• The short-term strategy is still to be selective in stocks. We advise investors to look for laggards relative to peers/broader market and domestic consumption/year-end spending plays and may gradually book partial profits around 1385 +/-.
• Today we peg resistance for the SET index at 1385-1390 and support at 1370-1365.

Indonesia

• Composite index of Indonesian stocks declined on Wednesday (19/12), in spite of higher closes on Asian markets following strong gains in the US stock markets on fresh signs of progress in talks to avert the fiscal cliff of tax hikes and spending cuts. The Jakarta composite index lost 25.577 points, or 0.59%, to close at 4,275.859. Mining sector led losses that included seven of the 9 major industry groups, with 1.89%-drop, trailed by basic industry sector with 1.41%-decline, and consumer goods with 1.22%-slump. Most of Indonesia’s blue-chip stocks also declined, as the LQ45 index that tracks them shed 3.991 points, or 0.54%, to close at 731.754, with 31 of its components fell and 8 other climbed. More than 165 shares declined, 86 shares climbed, and 218 shares remained unchanged Wednesday on the Indonesia Stock Exchange, where 4.032 billion shares worth IDR 4.229 trillion traded on the regular board. Foreign investors accumulated net purchases valued at IDR 280.749 billion.
• Indonesian stocks may decline further today, after “fiscal cliff”concerns resurfaced and dented sentiments in Asia markets. We expect the JCI to trade within 4,246 – 4,329 range today.

Sri Lanka

• Market ended the trading day with a mixed note and the benchmark ASPI index closed within the green terrain at 5,512.66, gaining marginal 4.87 points. Regardless of the ASPI movements, negative closures were observed on MPI and S&P SL20 Price Indices. MPI closed the day at 5,020.86 loosing 18.44 points and S&P SL20 concluded at 3,017.99 with a dip of 1.63 points. The total turnover for the day amounted to LKR 464.3Mn.
• The best performing sectors were the Banking, Finance & Insurance (LKR 237.5Mn) & Beverage Food and Tobacco (LKR 80Mn) sectors respectively. A total of 11Mn shares were changed hands during the day, which was 68.74% decrease over previous day. LKR 105Mn worth of net inflow was recorded through the foreign transactions today and this extended the year to date net foreign inflow to LKR 36.99Bn.

Australia

• The Australian share market closed at its highest level for the year with investors betting on US policymakers to back a deal to avert $US600 billion in federal tax hikes and spending cuts. At the close on Wednesday, the benchmark S&P/ASX200 index was 22.6 points or 0.49 per cent higher to 4,617.8.
• Today, the local share market is set for a flat start as Wall Street posted losses due to stalled budget negotiations in the United States. The SFE Futures 200 is indicating an open around 4,603 points.
• On the economic news front for Thursday, Commonwealth Bank releases its business sales indicator for November. In company news, GrainCorp and Elders hold annual general meetings.

Hong Kong

• China’s shares swung between gain and loss, with no material news from China's government. The benchmark Shanghai Composite Index dropped 0.01 percent to 2,162.24. The CSI 300 breakthrough 150 SMA, which is a bullish technical signal.
• With positive news on the fiscal cliff in the US, Hong Kong stocks rode on the rally to close higher. The benchmark Hang Seng Index gained 128 to 22,623 which is a record high in recent times. Turnover totaled 62.9 billion HK dollars.
• Technically, the HSI is expected to consolidate at around 22,000 with near term support and resistance at 22,400 and 22,800 respectively.

Morning Note

Company Highlights

BBR Holdings (S) Ltdannounced that it has just won two contracts worth S$182.9 million to build a total of 1,282 units of Housing and Development Board flats. The first contract is for building and contingency works for 808 HDB flats at Kallang Whampoa and is scheduled to be completed in different phrases by end 2015. The works include two blocks, a roof garden, resident committee centre, minimarket, precinct pavilion, an education centre, link bridges and other related civil engineering works. The second contract is for similar type of works for 474 HDB flats at Sengkang Neighbourhood 2 and is scheduled to be completed in different phrases by April 2015. The works include seven blocks, a childcare centre, roof garden, driveway and service roads. (Closing price: S$0.245, 0%)

COSCO Corporation (Singapore) Limited announced that the contract (detailed in the announcement of 10 September 2012) for one unit of Harsh Environment Semi-Submersible Accommodation Rig, signed by COSCO Qidong Offshore Co. Ltd, a subsidiary of the Company’s 51% owned subsidiary, COSCO Shipyard Group Co., Ltd with Axis Offshore, a joint venture between Danish shipowner, J. Lauritzen and Norwegian private equity fund, HitecVision, has been made effective at a value of over US$200 million. The rig is scheduled for delivery in Q1 2015. (Closing price: S$0.885, 0%)

IEV Holdings Limitedannounced that, on 16 December 2012, its 49% owned associate, IEV (Malaysia) Sdn. Bhd. received a Letter of Award for a major transportation and installation project by an established oil and gas operator for a deepwater facility in the South East Asian region. The Project is scheduled to commence in January 2013 and is expected to be completed in 3 years. As the LOA is subject to a formal contract to be signed between the various parties involved in the Project, the Company will continue to update its shareholders with further details of the Project and Contract where appropriate and when such specific terms of the Contract have been agreed upon and finalised. (Closing price: S$0.480, -1.031%)

Source: PhlilipCapital Research - 20 Dec 2012