Morning Market Commentary

- STI: +0.16% to 3168.6
- MSCI SE Asia: +0.04% to 863.7
- Hang Seng: +0.16% to 22541.2
- MSCI APxJ: +0.15% to 462.5
- Euro Stoxx 50: -0.10% to 2648.5
- S&P500: -0.24% to 1426.7

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst
 

Sit tight. The US -and the world- is in for another week of political brinkmanship after last week's stalemate. Lawmakers are likely to reconvene on Thursday after the festive break. While there might be little time (before Dec 31) to iron out the fundamental differences between the Democrats and Republicans, an agreement could still be struck by the end of this year on stop-gap measures with regard to tax and spending issues to avert the cliff , leaving most of the heavy lifting -overhauling the tax code, healthcare entitlement, broader deficit reduction deal - to 2013. Taking a longer-term view, even if the US manage to avert the year-end fiscal cliff (a boost for near-term growth prospects), it still has to address longer-term fiscal sustainability issues (though that is not at the forefront of markets' minds now).

Meanwhile, Santa Claus skipped US and popped by China instead. The Shanghai Composite and CSI 300 saw a Santa Claus rally, eking their heads above their respective 200dma on expectations of reforms under the new leadership as well as nascent signs of an economic rebound. On account of attractive valuations as well as signs of green shoots in the Chinese economy, investors could consider entering long positions in (i) ChinaAMC CSI300 Index ETF (83188 HK) as a proxy for the A-share CSI300, (ii) H Share Index ETF (2828 HK) as a proxy for the H share HSCEI, and (iii) Tracker Fund of Hong Kong (2800 HK) as a proxy for HSI.

Macro Data:

In Singapore, headline inflation eased from 4.0% y-y in Oct to 3.6% in Nov, owing to more moderate increases in private transport and accommodation costs -which accounted for slightly under two-thirds of headline inflation. Excluding these 2 components, MAS Core Inflation decelerated 0.2%-ppt m-m to 2.0%. Looking ahead, accommodation and private road transport cost pressures are likely to persist, resulting in headline inflation to tip over 4.5% and stay elevated around 3.5 -4.5% next year. While a stronger Singapore dollar might not be able to fully mitigate domestic drivers of inflation, we expect MAS to continue to stand pat -maintaining a modest and gradual appreciation of the S$NEER.

In Taiwan, industrial output rose by 5.85% y-y in Nov, the fastest pace in the past nine months, compared to the revised reading of 4.84% y-y in Oct. The accelerating industrial output further adds to our case that Taiwan’s economy is reviving and the China’s continued re-acceleration would lend support to the island’s export, which makes up about two thirds of Taiwan’s total GDP. As announced earlier, the government left the benchmark interest rate unchanged for a 6th straight month, which is also a bullish sign reflecting the authority’s confidence in the economy outlook.

Regional Market Focus

Singapore

• The benchmark STI inched up to 3,168.6 (+0.16%) in the quiet Christmas Eve trading day. The 1.1bn shares traded were worth S$0.4bn.
• We released our Singapore Equity Strategy report today. Using four valuation and momentum indicators, we conclude that the Singapore Market should turn in positive performance for 2013. Our analysis of earnings trend suggests that earnings momentum in the Singapore Market have just bottomed out. Risk premium in the Singapore market is 0.8ppt higher than its long term average and risk appetite could return as macro concerns ease off in the year ahead. A correlation analysis of STI’s P/B multiple against GDP growth in Singapore led us to conclude for multiples expansion as well. Lastly, Singapore Market’s valuation remains below its historical average and could exhibit mean reversion in the year ahead.
• In 2013, we believe that investors should position themselves in dividend plays that could grow their cash distributions and in businesses that benefit from the construction boom in Singapore.
• Our top picks for the Singapore Market are Pan United, SIAEC& 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 is a key beneficiary of the aviation growth story in the region and offers excellent dividend yields. 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 throughout the session marked by selective trading on Tue. Trading volume remained muted as several major stock markets were closed for Christmas holiday.
• Even though trading is likely to pick up after Christmas holiday, we believe it is unlikely to be heavy as some traders will remain on vacation during New Year holidays. Several stock markets in Asia will reopen for trading today but many bourses in Europe will remain closed for Boxing Day holiday. Overall we expect the SET index to remain stuck in a trading range of 1372-1382 today. Progress in US budget talks to avert the looming fiscal cliff will remain the most important external factor that holds markets hostage. Congress will return to Washington on Dec 27 for further negotiations to resolve the fiscal cliff by year-end deadlines. Yesterday foreign investors turned slight net sellers in both Thai equities and derivatives markets. However, we believe LTF/RMF buying before year-end could play a big role to lend support to or drive the market higher.
• In the near term, any rise could give opportunity for investors to gradually book partial profits. For trading, we advise investors to look for domestic consumption/year-end spending as well as tourism plays.
• Today we peg resistance for the SET index at 1382-1390 and support at 1372-1366.

Indonesia

• Composite index of Indonesian stocks finished slightly lower Friday (21/12), as most Asian markets declined after early optimism for progress on the US “fiscal cliff” faded. The Jakarta composite index slipped 4.602 points, or 0.11%, to close at 4,250.214. Shares in financial sector led declines that included six of the 9 major industry groups with 0.74%-loss, trailed by infrastructure with 0.71%-drop, and trade and services sector with 0.36%-decline. LQ45 – the index tracking Indonesia’s blue-chip shares – down 0.435 points, or 0.06%, to 725.921. More than 130 shares declined, 102 shares gained, and 236 shares stayed unchanged Friday on the Indonesia Stock Exchange, where 2.574 billion shares valued at IDR 3.232 trillion traded on the regular market. Foreign market participants accumulated net sales worth IDR 53.212 billion in total.
• The Jakarta composite index will likely advance today, trailing positive moves in Asia this morning. We expect the JCI to trade within 4,213 - 4,298 range today.

Sri Lanka

• The Colombo bourse opened the week experiencing a low market momentum; this was expected, as due to the Christmas holiday been during the week. However, the money markets yield lower during the week’s Treasury bill auction, with the one year and six months Treasury bill yielding 49 & 21 basis points lower than the previous week. Further, more money market liquidity could be expected in the immediate future. However, the All Share Price index and the S&P SL20 index closed positive, while the more liquid Milanka Price Index closed negative for the first trading day of the week. The ASPI closed at 5,524.89 gaining 8.40 points, the S&P SL20 concluded the trading day at 3,038.78 gaining 4.54 points. However, the MPI closed the day recording 5,039.82 losing 4.76 points. The market comparatively recorded low turnover, volume and trade levels once again in due with the holiday season. The market recorded tiny LKR 101.27Mn turnover for the day. The Banking, Finance and Insurance sector was the best performing sector for the day with a LKR 19.8Mn contribution to the daily turnover. During the trading day the market recorded 2,097 trades which resulted in 6.5Mn shares changing hands. The price gainers outnumbered the price losers by 92:73. Net foreign inflow for the day was 3.3Mn, which brings the year to date net foreign inflow to LKR 37.84Bn.

Australia
 

• Market closed for holiday.

Hong Kong

• Market closed for holiday.

Morning Note

Company Highlights

Singapore Post Ltd (SingPost) announced on Monday that it would buy all of General Storage Company Pte Ltd from Asia Pacific Storage Company Ltd for S$37 million. General Storage operates a self-storage business in Singapore, under the Lock+Store brand. Its facilities are located in two separate locations, namely Tanjong Pagar and Chai Chee. Dr Wolfgang Baier, group chief executive officer of SingPost, said the acquisition will enable the group to expand its self-storage business, S3. (Closing price: S$1.145, 0.881%)

GP Industries Ltd on Monday announced plans to sell all of its 50 per cent in Shanghai Jinting Automobile Harness Limited for 320 million yuan (about S$62.8 million). The estimated gain from the planned disposal is about S$13.3 million. GP, whose parent is Gold Peak Industries (Holdings) Ltd, said competition among the suppliers of automotive wire harnesses in Shanghai has become very intense in recent years. Also, the production of certain old harness products for a key customer will be terminated soon following the phasing out of the car models using the affected products. (Closing price: -, -)

Source: PhillipCapital Research - 26 Dec 2012