Morning Market Commentary

- STI: -0.38% to 3163.6
- MSCI SE Asia: -0.56% to 862.8
- Hang Seng: -0.68% to 22506.3
- MSCI APxJ: -0.83% to 461.5
- Euro Stoxx 50: -0.27% to 2651
- S&P500: -0.94% to 1430.2

MARKET OUTLOOK:
By Joshua Tan, Hd of Research

Last Monday, one of the webinar questions was did we expect a pause/pullback soon given the good run-up we have had. Technically, the trend is presumed until signaled otherwise – and we are now getting some signals of across the board weakness.

The S&P500, APxJ index have both put in price action that challenge their near term uptrends, momentum is weakening as well. The STI has been exhibiting volatile daily swings over the past week signalling indecision. The CSI300, our favourite trade, has hit a wall by slamming off the 200dma. South East Asia is still fairly positive but KLCI and JCI seem capped in the near term. The US$ index looks like making a short term bullish reversal. Oil has stalled. In short, some risk-off profit taking could be coming.

The catalyst has been none other than the US fiscal cliff as negotiations are stalled. Republican leader John Boehner had planned to put up for vote in Congress that taxes be raised only on >US$1m earners (as opposed to Democrat proposed threshold of US$400k) but pulled it last minute as he didn’t think it would get the votes. The outcome signals disarray among Republican ranks which makes for worse chances of a deal in the future. Still President Obama is hopeful and signalled that as both parties agree that 98% of Americans (<US$250k threshold) shouldn’t have a tax hike, perhaps they should start with a agreement there first. Our take is that this is a very likely outcome as the disagreement only comes for whether the well-off should or should not enjoy an extended reduced tax rate, there is unanimity that the middle-classes should have extended tax relief.

As such, a correction may not be too severe should it happen, though we would not put it past a polarised American body politic to NOT do the right thing. So this is still a tail risk.

In the longer term, US economic indicators join Asia’s in trending more positively. US core capex orders, which for the most part of this year been badly damaged by fiscal cliff uncertainty is actually reversing their %y-y contraction trend with 2 back to back months of good performance – it seems like businesses tired of the uncertainty are throwing caution to the wind and ramping up regardless. We still are progressively positive on stocks for 1H13 as we think macroeconomic fundamentals have seen a marked improvement.

SG equity strategist favours SIAEC, Capitaland, SATS and Pan United.
 

Macro Data:

In US, the economy is on a stronger footing in 4Q12, on account of robust core capex as well as healthy consumption. Specifically, capital goods orders (non-defence excld aircraft) expanded 2.7% m-m in Nov, following an upward revision of Oct's gain (3.2% m-m). Real cosumption expenditure rebounded 0.6% m-m in Nov, reversing from the 0.2% decline in the preceding month when Hurricane Sandy struck. Real personal disposable income also gained 0.8% m-m in Nov, bouncing from Oct's 0.1% contraction. However, consumer confidence -as measured by the Uni Michigan index- dipped 9.8pts m-m in Dec on account of uncertainties shrouding the looming fiscal cliff.

In China, the MNI flash business sentiment index fell slightly to 52.23 in Dec from the 53.78 reading in Nov, indicating a slightly slower expansion in business activities. The sub index for new orders fell to 51.06 in Dec from the 53.53 final reading in Nov. The sub index for production rose to 55.41 in Dec from Nov's final reading of 52.03. We expect the China's economy to continue picking up but in a moderate pace as export is still subject to weak external demand.
 

Regional Market Focus

Singapore
 

• The benchmark STI declined marginally to 3,163.6 (-0.38%). The 1.4bn shares traded were worth S$1.2bn.
• Following a strong run up, the Singapore Market finally corrected as investors began to focus their attention on the looming fiscal cliff in the US.
• Driven mainly by our positive view on the construction sector in Singapore, our Head of Research initiated coverage on Pan United Corp. with potential upside of 30%.
• Our top picks for the Singapore Market are Pan United, SIAEC, SATS & Capitaland. Pan United is a dominant supplier to the construction industry in Singapore and we expect the company to perform well given the strong pipeline of infrastructure work over the next few years. 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 the red throughout the session last Fri as efforts to avoid the looming US fiscal cliff were thrown into disarray but selective buying in SCC and BIGC however lent support to the market.
• Trading is likely to be subdued today ahead of Christmas and New Year holidays. Net foreign buying of Thai shares also moderated to a mere Bt200mn last Fri. The disarray in US fiscal cliff talks would add more worries to investors as the clock ticks towards a year-end deadline.
• In the near term, we continue to advise investors to gradually book partial profits. For trading, the strategy is still to be selective in stocks with focus on domestic consumption/year-end spending themes.
• Today we peg resistance for the SET index at 1376-1382 and support at 1370-1360.

Indonesia

• Closed for holiday

Sri Lanka

• The Colombo bourse concluded the third week of December on a tiny negative space. The benchmark ASPI closed the week at 5,516.49 losing 6.23 points; which was a marginal 0.11% drop compared to the previous week and the Milanka Price Index lost petty 00.62 points (0.01%) during the week and closed at 5,044.58. However, The S&P SL20 Index stood at 3,034.24 recording a gain of 11.45 points (0.38%) at the closure. LKR 5.36Bn worth of total turnover was recorded within the week, a significant increase of 95.71% on comparison to the previous week. The total traded volume for the week was 130.3Mn shares, an increase of 6.66% against the previous week.
• The total market capitalization stood at LKR 2.1Tn, this recorded a year to date loss of 4.26%. Market PER(X) and PBV(X) stood at 15.15 and 2.01 respectively at the week end and foreign purchases amounting to LKR 2.2Bn outpaced the foreign sales of LKR 1Bn during the week, this resulted with a net foreign inflow of LKR 1.19Bn, extending the year to date net foreign inflow to LKR 37.83Bn.

Australia

• ASX200 index closed at 4623.58 on Friday.
• Technically, the index has conquered the previous 2012 high at 4571 and is now challenging the resistance region near 4650. We are observing some expansion in trading volume which increases the likelihood of the index heading north.

Hong Kong

• Hong Kong stocks dropped due to there is some bad news from the financial cliff of America. The benchmark Hang Seng Index dropped 153 points to 22506 which is near the 10 SMA(22495) ,turnover totaled 62.0billion HK dollars. As we expected the HSI gained a relatively strong support form the 10 SMA, the market trend depends on the China Policy, during the year-end of 2012, we expected the NDRC will announce more favor policy, which is a positive signal to the market. Thus, we maintain a cautious bullish view if the market close is over 22,400
• Technically, the HSI is expected to consolidate at around 22,000 with near term support and resistant at 22,400 and 22,800 respectively.

Morning Note

Company Highlights

Treasury China Trust Limited announced that its headquarters in Shanghai is expected to deliver revenue of over RMB700 million (S$137 million) a year when fully completed. The HQ comprises 176,000 square metres (sqm) of existing office and retail facilities to be complemented by an 88,000 sqm extension for which the design has received all the necessary approvals and is currently under construction. The retail component of its HQ has achieved a leasing pre-commitment of 41.78 per cent and the board expects the average rent across the entire retail mall will achieve the projected range of RMB13 to RMB14/sqm/day on completion. This will boost its income and the trust is expected to return to a policy of regularly paying out distributions no later than 2015. (Closing price: S$1.48, 0%)

Chinese shipbuilder Cosco Corporation said that four shipbuilding contracts worth US$119.2 million (S$145.3 million) in all, which its Zhoushan unit signed with a Hong Kong ship owner, have been made effective on Dec 21, 2012. Cosco (Zhoushan) Shipyard earlier sealed the contracts for the construction of four UT771CDL Platform Supply Vessels (PSVs). Delivery of the vessels are expected to commence from first half of 2014, Cosco said. In addition, within six months, the ship owner has an option to declare up to another four contracts for the construction of the same UT771CDL PSVs - also at a value of US$119.2 million, it added. (Closing price: S$0.880, -0.565%)

SIIC Environment Holdings Ltd said its subsidiary, Nanfang Water Co Ltd, had been awarded a Transfer-Operate-Transfer wastewater project in Wuchuan City, Guangdong Province with investment value of 75.1 million yuan (S$14.5 million). The investment will be fully satisfied in cash and financed through a loan from a wholly owned subsidiary of Shanghai Industrial Holdings Limited, a controlling shareholder of the company. The wastewater treatment plant will have a design capacity of 40,000 tons for 25 years, and it will have a minimum off-take guarantee from the Wuchuan City municipal government. Subsequently, Nanfang Water will incorporate a wholly owned project company in China, Zhanjiang City Nanfang Water Co Ltd, to undertake the operation and maintenance of a wastewater treatment plant. The new company will have a registered capital of 30 million yuan. (Closing price: S$0.068, -2.857%)

Sysma Holdings Limited announced that it has agreed to acquire the entire issued and paid-up share capital of De Paradiso Development Pte Ltd. De Paradiso is a private Singapore-incorporated investment holding company which owns two plots of land located at Serangoon. It is Sysma’s intention to obtain the ownership of these two plots of land through the acquisition. De Paradiso has proposed to develop a cluster housing development comprising 18 units of three-storey terrace houses with basement car parks and communal facilities, and two units of three-storey semi-detached houses with attic. The proposed acquisition by Sysma is on the condition that De Paradiso holds the two plots of land and development rights. The total purchase for the proposed acquisition of De Paradiso is S$35.0 million. (Closing price: -, -)

Investment firm Rowsley, controlled by former remisier king, Peter Lim, is set to transform into a real estate company, with the announcement of two deals worth up to S$581 million. Rowsley will acquire 56-year old architect firm, RSP Architects Planners & Engineers, from Dr Albert Hong and four of his partners for up to $223 million. Trading in Rowsley's shares was halted on Friday. The counter closed at 14.1 Singapore cents on Thursday. The reverse takeover will see RSP become the second building design and engineering firm to be listed on the Singapore Exchange. (Closing price: -, -)
 

Source: PhillipCapital Research - 24 Dec 2012