Morning Market Commentary

- STI: +0.25% to 3191.8
- MSCI SE Asia: +0.34% to 870.1
- Hang Seng: +0.21% to 22666.6
- MSCI APxJ: +0.56% to 466.3
- Euro Stoxx 50: -1.24% to 2626.9
- S&P500: -1.10% to 1402.4

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

As we countdown to the new year, the fiscal cliff impasse continues amid a horse-trading frenzy (at the time of this writing), with the Senate scheduled to reconvene at 11am Mon (midnight Mon, SGP time). Income thresholds for tax hikes in view of the expiry of Bush-era tax rates remain the main sticking point, amongst others (spending cuts, estate taxes).

The S&P 500 and DJIA might extend their slump in the absence of a fiscal deal or even endorsement of Obama's backup proposal (which only deals mainly with extension of current tax rates for those earning up to US$250,000). With slightly over 24 hours left, there is little time (before Dec 31) to iron out the fundamental differences between the Democrats and Republicans. Nonetheless, we are cautiously optimistic that an agreement could still be struck by the end of this year on stop-gap measures with regard to tax extensions 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.  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 certainly not at the forefront of markets' minds now).

In Singapore, the STI might retrace (pull back) from its 16-mth high, especially if there is no signs of substantial progress in fiscal cliff negotiations during Asian trading hours today.  Price action ('dragonfly doji' last Fri)  also hints at the possibility of a pause/retracement. Nonetheless, should a fiscal deal -even a more modest one- be hammered by year end, we could still see a strong impulse move up -possibly taking out the 3200 psychological level.

We wish our readers a happy and prosperous new year!

Macro Data:

In Japan, industrial production slumped 1.7% m-m sa in Nov, reversing from gains of 1.6% in the preceding month. Manufacturing output is on a broader downward trend and its lackluster performance is likely to aid Abe’s cause in piling pressure on the BoJ to undertake aggressive monetary easing. Meanwhile, retail sales rose 1.3% y-y in Nov, unchanged from the preceding month.

In South Korea, industrial production rose for the third consecutive month by 2.3%m-m sa in Nov, buoyed by high-tech production as well as accumulation of inventories.
 

Regional Market Focus

Singapore
 

• The benchmark STI closed higher at 3,191.8 (+0.25%). The 2.2bn shares traded were worth S$0.94bn.
• Markets may likely be adversely impacted today by fears that the US lawmakers fail to agree on a deal to avert the fiscal cliff. The impact today is likely to be moderate, while a massive slump in the index is unlikely.
• 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
 

• Thailand Market is closed from 31st Dec 2012 to 1st Jan 2013.

Indonesia
 

• Indonesia Market is closed from 31st Dec 2012 to 1st Jan 2013.

Sri Lanka
 

• The market pursued its positive momentum throughout the week to reach its 10 week high on Friday, closing the index above 5,600 points. All three indices recorded considerably impressive appreciation throughout the shorter last week of December. All Share Price Index gained by 90.64 points (1.64%) to close the week at 5,607.13 and Milanka Price Index stood at 5,120.17, increased by 75.59 points (1.50%). S&P SL20 Index also increased by 34.75 points (1.15%) and ended the week at 3,068.99.
• LKR 1.27Bn worth of total turnover was recorded within the week, a significant decrease of 76.21% in comparison to the previous week. Meanwhile, the Friday’s turnover stood at LKR 930.6Mn. The total traded volume for the week was 48Mn shares, a decrease of 63.18% against the previous week. The total market capitalization stood at LKR 2.15Tn, this recorded a year to date loss of 2.71%. Market PER(X) and PBV(X) stood at 15.79 and 2.05 respectively at the weekly closure. Foreign purchases amounting to LKR 811.2Mn outpaced the foreign sales of LKR 72.5Mn during the week to result a net foreign inflow of LKR 738.7Mn while exceeding the year to date net foreign inflow to LKR 38.58Bn.

Australia
 

• The Australian stock market will close at 1400 AEDT on New Year's Eve.
• National turnover was 174.5 million securities worth $159.5 million, with 176 stocks trading up, 351 down and 246 unchanged.

Hong Kong
 

• Prior to US fiscal cliff problem, the transaction volume of HK market was low as investors stood on sideline waiting for a clear trading signal. Hong Kong stocks rose on the rally of China’s market. The benchmark Hang Seng Index gained 46 points or 0.2% to 22,666 and traded between 22,628 and 22,706. Turnover dropped to39.634 billion HK dollars.
• Technically, the HSI is expected to consolidate at around 22,000 with near term support and resistant at 22,400 and 22,800 respectively.  However, we maintain our bullish view on the China Market, we expect the strong rebound will continue to Q1 of 2013 and investors are recommended to buy the A share ETF such as I-share A50 (2823).

Morning Note

Company Highlights

China Essence Group, which has to redeem HK$30 million (S$4.73 million) worth of convertible bonds on Dec 31, is experiencing difficulty making the payment on time. The potato products maker cited an adverse operating environment - partly the result of lower potato starch prices worldwide, which have dampened sales volume and turnover. The difficult environment also affected customers, leading to slow repayment of the company's receivables. (Closing price: S$0.055, +14.6%)

Former DBS Group chairman Koh Boon Hwee will become Far East Orchard's non-executive chairman and non-executive director on Jan 1, succeeding Philip Ng, who will stay as a strategic adviser. (Closing price: S$ 2.190, +0.5%)

Keppel Land China has embarked on yet another Wuxi project in China's Jiangsu province, announcing yesterday the purchase of a 6.6-hectare prime city centre site in Beitang District for 417.6 million yuan (S$80.8 million). The mixed-use development project - the fifth in Wuxi for the wholly owned subsidiary of Singapore- based Keppel Land - will have 1,135 high-rise residential apartments and "commercial components" that include a shopping street and small office- home office (SOHO) units. The development is targeted at upper-middle-class homebuyers. The project is expected to be launched in the first half of 2015. (Closing price: S$ 4.050, +0.2%)

Temasek Holdings boosted its stake in Olam International by another percentage point in the past week after saying the commodity trader is an attractive long-term investment. Two units controlled by Temasek bought around 24 million shares between Dec 20 and Dec 28, lifting its deemed interest to 19 per cent from 18 per cent, according to an Olam filing. (Closing price: S$ 1.560, +2.3%)

SC Global's Chairman and CEO, Mr Simon Cheong, launched a voluntary unconditional cash offer for all the issued ordinary share capital of SGX Mainboard-listed SC Global Developments Ltd on 5 December 2012 at a cash consideration of S$1.80 per Share (the "Offer Price").Mr Cheong is making the Offer through his wholly owned investment holding company, MYK Holdings Pte. Ltd. (the "Offeror").The Offeror has no intention of increasing the Offer Price and, accordingly, the Offer Price of S$1.80 for each Offer Share is the final price. In the event the Offeror acquires an additional 10.04% of the Shares in issue, the free float will fall below the minimum threshold of 10% required under Rule 723 of the SGX Listing Manual and the SGX-ST may suspend the trading of the Shares upon the close of the Offer. (Closing price: S$ 1.900, +0.3%)

A subsidiary of Sky China Petroleum Services has inked a conditional agreement to sell its 49 per cent stake in Wenlin Xinghai Ocean Shipping Co for 105.3 million yuan (S$20.7 million). The company may incur a net loss this year because of an impairment provision relating to the disposal, it warned. (Closing price: S$ 0.080, -%)

Yoma Strategic Holdings Ltd wishes to announce that the Company (through its wholly-owned subsidiary Yoma Strategic Investments Limited) has on 28 December 2012 entered into a supplemental agreement with Parkson Myanmar and FMI in relation to the joint venture to establish and operate departmental stores in Myanmar. (Closing price: S$ 0.710, -0.7%)

Source: PhillipCapital Research - 31 Dec 2012