Morning Market Commentary

- STI: +0.10% to 3183.9
- MSCI SE Asia: +0.22% to 867.1
- Hang Seng: +0.35% to 22619.8
- MSCI APxJ: +0.23% to 463.7
- Euro Stoxx 50: +0.43% to 2660.0
- S&P500: -0.12% to 1418.1

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

The S&P 500 and DJIA staged a late rally, recovering from intra-day lows that pierced through their 50dma and 200dma support levels respectively.  What provided the spark? Well, news that the House of Representatives is scheduled to reconvene on Sunday, paving the way for last-minute fiscal budget negotiations to avert the dreaded year-end fiscal cliff.

While US lawmakers are back to business (specifically the negotiating table), time is running out. Though 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. Furthermore, the US is close to breaching its debt limit - again. But before you start to panic, emergency measures could kick in (in the worse case scenario) and would keep the government afloat for around another two months. Nonetheless, we expect Congress to eventually raise the debt ceiling which it has regularly done in the past (though unlikely to be part of this narrow year-end fiscal deal) to prevent the US from defaulting on its debt obligations.

In Singapore, the STI drifted higher. Yesterday's 'gravestone doji' suggests that bulls want to charge higher but lack the conviction to do so amid uncertainties over the looming US fiscal cliff. Should a fiscal deal -even a more modest one- be hammered by next Monday (Dec 31), we could still see a strong impulse move up.

We are Overweight Singapore on account of the following:
(i) The Singapore equity market (MSCI SG: around 3.5% dividend yield) is likely to be a key beneficiary in the global search of yield amid large-scale asset purchases as well as monetary easing bias by G4 central banks, and (ii) Ongoing multi-year construction boom will lend support to the economy (amid sluggish external demand) as the government seeks to ease supply-side infrastructure bottlenecks arising from a faster-than-expected increase in resident population.

ETF:  SPDR STI (ES3:SGX) / Nikko AM STI (G3B:SGX).

CFD: Straits Times Index SGD5 CFD (STI), Singapore Index SGD20 CFD (SMSCI).

Our SG equity strategist’s top picks are SIAEC, Capitaland & Pan United.
 

Macro Data:

In the US, the housing market recovery continues to gain traction. Specifically, new home sales surged  4.4% to 377,000 saar (a 2-year high) in Nov. However, consumer confidence -as measured by the Conference Board index- slumped 6.4 pts to 65.1 in Dec, following a downward revision to Nov data (revised from a 0.6 pt increase to 1.6 pts decline).

In Thailand, industrial production surged 83% y-y in Nov, following a 36% gain in the preceding month due to a low base effect from last year’s devastating floods. Recall the central bank (BoT) had earlier stood pat in Nov, maintaining the benchmark one-day bond repurchase rate at 2.75% -consistent with our expectations- in view of resilient domestic demand as well as an improving global economy.

In China, industrial profit rose for a third month in Nov, by 22.8% y-y, after the 20.5% y-y gain in Oct. The year to date industrial profit grew by 3% y-y for the first 11 months in 2012, compared to the 0.5% y-y growth achieved for the first 10 months. The accelerating industrial profit continues to add signs to the nation’s economic bottoming out.

In Hong Kong, exports rose by 10.5% y-y in Nov, compared to a 2.8% y-y drop in Oct. Imports rose by 9.0% y-y, compared to a 3.3% y-y gain in Oct. By trading partners, export to China rose by 19.0% y-y in Nov, a second double digit growth in the past 3 months, after the 1.1% y-y gain in Oct and 25.5% y-y gain in Sept, reflecting a reviving demand from mainland China’s reacceleration. Exports to US rose by 0.3% y-y in Nov, compared to a 2.4% y-y drop in Oct. Though exports to US and Europe might remain sluggish, the accelerating growth in China is likely to have positive spillover to Hong Kong’s local economy.

In Japan, total motor vehicle exports decreased by 13.5% y-y in Nov, after a 18.5% y-y contraction in Oct and 19.6% y-y contraction in Sept. The substantial decreases are due to the island dispute with China started in early September as sales are seriously affected in China. A separate report shows that the nation’s domestic construction order rose by 4.7% y-y in Nov, the first gain in last 3 months, after a 14.7% y-y drop in Oct. The recent weakening yen following expectation of further easing by the new government might help stabilize the nation’s sluggish export going forward.
 

Regional Market Focus

Singapore
 

• The benchmark STI stood ground at 3,183.9 (+0.10%). The 2.8bn shares traded were worth S$1.0bn.
• Q&M Dental Group announced a takeover bid of S$22.65mn for the Singapore Medical Group (SMG). The offer price of S$0.1323 is at a 41% premium to SMG’s last traded price. The market took this news positively with the shares of both companies trading higher after the announcement: Q&M (+10%), SMG (+35%)
• 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
 

• The composite SET index stayed in the green throughout the session on Thu. Gains were led by construction, telecoms, publishing and hotel shares.  
• Return of foreign buying and LTF/RMF buying before the end of the year surprisingly sent the SET index sharply higher in late trading on Thu. We believe the positive momentum will likely push the main index   higher to test the key psychological level of 1400 today but investors should also watch out for a bout of profit taking that may follow the rally amid uncertainty over US fiscal cliff talks, which must wait until last minute before year-end deadlines this weekend. Despite optimism that a deal could be reached to avert the fiscal cliff of harsh tax increases and spending cuts that may threaten to tip the US economy back into recession, the impact on the overall economy is definitely likely to be seen. For this reason, the air of uncertainty may linger well into early next year. External uncertainties aside, a strong rally in the SET index to a 16-year high may give a good excuse for LTF unit-holders that have held for at least five years to take profits early next year in the face of global economic uncertainty.  
• For short-term strategy, any rise could give opportunity for investors to gradually book profits and investors may carry some stocks in portfolio over into next year with focus on public and private investment plays, domestic consumption plays and dividend plays.
• Resistance on the main index is seen at 1400-1406 and support at 1390-1384 today.

Indonesia
 

• Indonesian stocks ended higher Thursday (27/12), as Asian markets mostly closed higher on hope for policy stimulus in Japan. The Jakarta composite index gained 6.767 points, or 0.16%, to close at 4,281.861. Shares in agriculture sector led gains that included five of the 9 major industry sectors with 2.58%-gain, followed by miscellaneous industry sector with 1.83%-advance, and infrastructure with 0.72%-climb. The LQ45 index that tracks Indonesia’s blue-chip shares, gained a fraction and closed at 730.008. More than 115 shares advanced, 117 shares declined, and 236 shares stayed unchanged Thursday on the Indonesia Stock Exchange, where 2.513 billion shares valued at IDR 2.829 trillion traded on the regular board. Foreign market participants accumulated net purchases worth IDR 105.505 billion in total.
• The Jakarta composite index will likely turn higher today, trailing positive moves on most Asian markets this morning. We expect the JCI to trade within 4,253 – 4,304 range today.

Sri Lanka
 

• All Indices experienced a steady growth throughout the day and closed the day recording positive closures on all three indices. The Benchmark ASPI stood at 5,570.91 after gaining 46.02 points; this was an increase of 0.83% compared to the previous day. The more liquid MPI closed the day at 5,060.83 with an increase of 21.01 points and The S&P SL20 Price Index closed the day at 3,060.37 after gaining 21.59 points. The market capitalization for the day stood at LKR 2.14Tn recording a year to date loss of 3.34%.219 counters engaged in trading today, further the market recorded 130 positive price contributors against the 41 negative subscribers.
• The day’s turnover stood at LKR 242.4Mn after an increase of 139.37% against the previous trading day.  The best performers under the sectorial summary were Diversified Holdings (LKR 161.1Mn) and Bank Finance & Insurance (LKR 40.3Mn) respectively.  The total traded volume for the day was 8.27Mn. This is a 27.47% increase against the previous day.  The foreigners were net buyers for the day recording a net inflow of LKR 119Mn, extending the year to date net foreign inflow to record LKR 37.96Bn.

Australia
 

• The upward trend of ASX 200 index continues, with the index closed at 4647.96 on Thursday. The index is likely to clear the resistance level near 4650, supported by the recent mild expansion in trading volume and the re-acceleration of China economy.

Hong Kong
 

• Local stocks rallied after 2 days Christmas Holiday. The HSI and HSCEI rose 78 points and 77 points to 22619 and 11348 respectively. Market volume was 41.6billion.
• The benchmark index followed the surge in China market during the Christmas holiday, in that period the China market rose nearly 3%. The HSI opened with day high 164 points to 22719 and met a relative strong resistance as we expected before. In afternoon session the rally was further narrowed as following the drop in China market.
• Technically, the HSI is expected to gain a support from 22500 level, major resistance will be 22800 level, investors are suggested to stand on sideline and wait for a clear trading signal or buy the A share’s ETF.

Morning Note

Company Highlights

Keppel Corporation’s subsidiary, Keppel Offshore and Marine, said on Thursday that it had bagged contracts totalling S$420 million for shipbuilding and upgrading work, bringing its full-year order haul to S$9.9 billion, just shy of its 2011 record of S$10 billion. Keppel Singmarine, which builds specialised ships, secured two contracts. It will build a deepwater pipelay vessel for a McDermott International subsidiary called Hydro Marine Services and begin work in Q1 next year. Keppel Singmarine will also construct a catamaran air dive support vessel for Australia-based Bhagwan Marine that will be deployed to the north west of Western Australia after it is completed in Q1 2014. (Closing price: S$10.960, +0.274%)

Olam International now holds a 100 per cent interest in NZ Farming Systems Uruguay Ltd (NZFSU), following the commodity trader's full cash takeover offer for all of the shares it did not already own, which closed on Nov 30. On Nov 26, Olam said it had acquired more than 90 per cent of the shares in NZFSU and had become a dominant owner under the takeovers code. It then went on to complete the compulsory acquisition of the remaining NZFSU shares for NZ$25.8 million (S$25.9 million). "NZFSU has already been delisted and its ordinary shares ceased to be quoted on the NZX Main Board from close of business on Dec 6, 2012," said Olam on Thursday. The entire acquisition of a 100 per cent shareholding in NZFSU cost Olam NZ$159.6 million. (Closing price: S$1.525, -1.294%)

Technics Oil & Gas Ltd is looking to raise net proceeds of S$11.2 million in a new share issuance to Eversendai Corporation Bhd, a Malaysian-listed structural steel turnkey and power plant contractor. Eversendai currently has a 13.85 per cent interest in Technics. Technic on Thursday said it has entered into an agreement with Eversendai to allot and issue the latter 10.7 million new ordinary shares at S$1.05 a share - which is a 2 per cent premium to Technic's weighted average price per share for trades done on Wednesday. The placement shares will make up about 4.77 per cent of Technic's enlarged issued and paid-up share capital. (Closing price: S$1.055, +2.427%)

Nam Cheong Ltd on Thursday said its subsidiary, Nam Cheong International Ltd, had secured US$56.4 million (S$69 million) worth of contracts. The contracts include one unit of platform supply vessel and two units of anchor handling towing supply vessels. These new contracts bring the total number of vessels sold by the company this year to a record 21. Revenue from the contracts will be recognised over the relevant contractual period in accordance with the group's revenue recognition policy. (Closing price: S$0.255, +2.0%)

Source: PhillipCapital Research - 28 Dec 2012