Morning Market Commentary

- STI: -0.77% to 3167.1
- MSCI SE Asia: +0.00% to 870.6
- Hang Seng: -0.04% to 22656.9
- MSCI APxJ: +0.05% to 466.3
- Euro Stoxx 50: +0.35% to 2635.9
- S&P500: +1.69% to 1426.2

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Markets will kick off the new year with significant volatility today as patience is running thin over the 11th hour horse-trading frenzy and lack of a formal fiscal deal, especially with the sequester looming ahead and the debt ceiling already breached.

Has a fiscal deal been reached yet? Well, not exactly. The latest (at the time of this writing 0700hrs, SGP time) is that the House remains divided. Specifically, the Republicans (especially the conservatives)-who control the House- are resisting the vote on a bipartisan fiscal compromise (that cleared the Senate) on account of a lack of spending cuts (fundamental sticking point between the Democrats and Republicans).

Technically, the US is over the 'fiscal cliff' as no deal was reached by end of 2012 but Tuesday's New Year holiday provided some breathing space. The Friday rally in US equities (S&P 500 and DJIA) suggest that markets have priced in a fiscal deal of sorts- the lack of which will see Friday's gains wiped out at the blink of an eye.

While the US has breached its year-end debt limit - again, 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 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 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 continue to 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)  already hint at the possibility of a pause/retracement. Nonetheless, should a fiscal deal -even a more modest one- be hammered over the next few days, we could still see a strong impulse move up.

On the economic front, Singapore narrowly escaped a technical recession in 4Q12, registering growth of 1.2% for the whole of 2012 based on advance estimates. Looking ahead into 2013, we caution that modest growth (around 2%) and high inflation (domestically-driven) environment might be the new norm as the Singapore economy restructures and focuses on inclusive growth. If not for the tight labour market (which are already some signs of cracks), the economy would be at risk of stagflation.

The weakness in electronics manufacturing output as well as exports is likely to persist in the near term as (i) Singapore is not plugged into the tablet and smartphone value chain (as compared to South Korea and Taiwan) and (ii) global demand -as reflected in the SEMI book-to-bill ratio- remains tepid. While a stronger Singapore dollar might not be able to fully mitigate domestic drivers of inflation (still-elevated accommodation and private road transport costs), we expect MAS to continue to stand pat -maintaining a modest and gradual appreciation of the S$NEER, in a bid to anchor inflation expectations in view of induced capital inflows owing to quantitative easing by major G4 central banks, barring a significant slowdown in the global economy.

Amid a sluggish external demand, industries such as the construction sector as well as the marine and offshore engineering cluster (with order books relatively full) will be the main drivers of growth instead.

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
 

Macro Data:

In Singapore, the economy expanded by 1.8% q-q seas adj annualised in 4Q12, reversing from a contraction of  6.3% in the preceding quarter. Full year 2012 growth stands at 1.2%, based on advance estimates, weighed down by weakness in the manufacturing sector.

In China, growth is gradually picking up with manufacturing activity continuing to expand in Dec. Specifically, the Markit manufacturing PMI rose 1pt m-m to 51.5 (a 19-month high) in Dec while the NBS manufacturing PMI stood at 50.6 (unchanged from the preceding month) . This momentum is likely to continue, especially on the back of infrastructure construction as well as proactive fiscal policies.

In South Korea, headline consumption rose 0.2% m-m nsa in Dec after two consecutive months of contraction. Core inflation -excluding food and energy prices- rose 0.2% m-m nsa in Dec after remaining flat for the preceding four months.
 

Regional Market Focus

Singapore
 

• The benchmark STI closed lower to 3,167.1 (-0.77%) on the last trading day of the year. The 1.5bn shares traded were worth S$0.96bn.
• Among the STI components, property related counters turned in the largest gains (CMA: +75%, Capitaland: 72%, FNN: 61%, GLP: 61%, HK Land: 58%) with commodities and supply chain players as the worst performers (Wilmar: -32%, Olam: -25%) for the whole of 2012.    
• Singapore’s economy narrowly avoided a technical recession and expanded by 1.8% on a sequential basis in 4QFY12, translating into full year growth of 1.2%. Going forward, our team expects GDP growth of c.2% in 2013. Our GDP growth forecast is consistent with a P/B multiple of 1.5X (current: 1.4X) in our historical analysis of the STI and suggests room for multiples expansion in the year ahead.
• 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 range, seesawing between positive and negative territory on the last trading day of 2012. Sporadic bouts of short-term profit taking kicked in before the composite SET index finished the year at 1,391.93 points, up as much as 366.61 points or 35.75% from a year earlier.
• The SET closed out 2012 with total gains of 366.61 points or 35.75% y-y to 1,391.93. For 2013, volatility is tipped to be extreme as investors seem to trade cautiously on unresolved negotiations to avoid the fiscal cliff. The US Senate recently approved to extend tax shield scheme (excluding people with annual income larger than US$450,000) and to postpone automatic spending cuts for two months; however, the bill will now have to be passed by the House of Representatives. If the Lower House wants to amend the contents, there would cloud the sentiment as either the spending cuts or tax hikes appears to have adverse impact on the US economy at certain level. Furthermore, investors may offload some LTFs whose expiration is due at the end of year. Under this scenario, investors may grab the opportunity that the SET broke the 16-year records to gradually cash in profits.
• For short-term strategy, any rise could give opportunity for investors to gradually book profits on rise.
• Today we peg resistance for the SET index at 1398-1402 and support at 1386-1376.

Indonesia
 

• Most Indonesian stocks advanced Friday (28/12), as end-of-year window dressing and positive momentum from Asian markets buoyed sentiments. The Jakarta composite index gained 34.826 points, or 0.81%, to close at 4,316.687. The advance included eight of the 9 major industry groups, with construction sector climbed 1.59%, agriculture rose 1.58%, and trade and services sector added 1.26%. Most of the blue-chip stocks also rose, as the LQ45 index that measures them advanced 5.034 points, or 0.69%, to 735.042. For the year, the JCI gained 11.89%. More than 175 shares advanced, 81 shared declined, and 89 shares remained unchanged Friday on the Indonesia Stock Exchange, where 3.008 billion shares valued at IDR 3.865 trillion traded on the regular board. Foreign market participants posted net purchases worth IDR 438.632 billion in total.
• With the fading concerns about the so called “fiscal cliff” in the US, sentiments may improve this week as risk appetite returns in the beginning of the year. We expect the JCI to trade higher today, with technical support at 4,275 and resistance at 4,346.

Sri Lanka
 

• Colombo bourse commenced another week today, indeed the last trading day of the 2012 on a positive note and the ASPI retained on green territory all over the day to conclude the year at 5,643.00, gaining 35.87 points during the day. S&P ended the year at 3,085.33 with an increase of 16.34 points during the day. The reported turnover for the day was LKR 289.27Mn, which was a heavy 69% reduction over the crossing abundant previous day’s turnover. The reported traded volume was 14.76Mn shares against the 33.21Mn shares of previous day.
• ASPI, which covers all 288 quoted counters, recorded a dip of 431.42 points or 7.11% during 2012 to close the year at 5,643.00 points. It was observed that ASPI tumbled during the first half of 2012 to record its lowest for the year as 4,725.57 points on 06th June 2012 while recording a year to date loss of 22%. Subsequently, the overall market recorded a noticeable recovery during August & September, narrowing its year to date loss to 7.11% at the yearly closure.
• MPI, the index which track the trading behaviour of more liquid stocks will be discontinued on 2013 onwards and concluded its journey today as its last day at 5,119.09 points losing tiny 1.08 points over previous trading day. Moreover, MPI floated between the range of 5,109.50- 5,133.35 within the day. With the YoY comparison, today’s closure is a 110.07 points drop compared with the closure of 2011. When analysing the trading pattern of MPI during this year, it had reached its peak of 5,688.95 points on 1st of October 2012, whilst plunged to 4,179.12 on 6th June 2012 which was its lowest for the 2012. Newly introduced S&P SL20 index will be replaced the MPI to analyze the trading patterns of blue chip counters of the market.
• Banking & Finance and Foods & Beverages counters were on the top of the largest contributors list for the daily turnover with 91.32Mn and 78.23Mn respectively. By recording a LKR 63Mn worth of crossing. The total market capitalization stood at LKR 2.17Tn as at the year end, recording a yearly loss of 2.09%. Gainers outnumbered the losers today. Foreigners were net buyers for the 2012 and recorded the highest ever total net foreign inflow of LKR 38.68Bn for 2012, including today’s net inflow of LKR 106Mn.

Australia
 

• Australian shares closed almost half a per cent lower on the final trading day of 2012, as investors locked in profits following a negative lead from Wall Street.
• The benchmark S&P/ASX200 index closed a shortened session down 22.4 points, or 0.48 per cent, at 4,648.9 points on Monday.
• The prospect of no deal being reached between US president Barack Obama and legislators in the US Congress over a looming budget deadline caused investors to offload stocks during Friday night's (AEDT) US session. (Source: Yahoo Finance)

Hong Kong
 

• The HK market only opened for the morning session on the last trading day of 2012. Local stocks swung between gain and loss. The HSI and HSCEI dropped 9 points and rose 57 points to 22656 and 11436 respectively. Market volume was 28.788 billion.
• The HSCEI followed the surge of China market, however, the 1st to 3rd January are the public holiday of China market. We believe it is a good chance to buy A share’s ETF.
• Technically, the HSI is expected to gain a support from 22500 level, major resistance will be 23000 level.

Morning Note

Company Highlights

CapitaCommercial Trust Management announced the resignation of Mr Liew Mun Leong as Deputy Chairman, Non-Independent Non-Executive Director and as Chairman of the Executive Committee (wef 1 January 2013) and Mr Richard Edward Hale will resign as Chairman and Non-Independent Non-Executive Director (wef 23 January 2013). (Closing price: S$1.685, -0.3%)

Mun Siong Engineering Limited announced that it has exercised the call option (as provided in the sale and purchase agreement dated 23 May 2011 entered between the Company and the vendors) to purchase the remaining shares in Wing Wah Industrial Services Pte. Ltd. (the “WW”) that it does not already own. This represents 20.0 per cent or 150,000 shares in the paid up share capital of WW. The purchase consideration is S$499,500.00 or S$3.33 each WW shares and is based on the sale and purchase agreement. (Closing price: S$-, -%)

Keppel Corporation Limited announced that its indirect wholly-owned subsidiary, FELS Tekform (Singapore) Pte Ltd, has on 30 November 2012, pursuant to a sale and purchase agreement dated 26 October 2012, completed the sale of 100% of the share capital of Tekform Building Systems (ZJG) Co., Ltd, a KCL indirect wholly-owned subsidiary, to Green Forist (Hong Kong) International Limited for a cash consideration of approximately CNY 8,400,000. The consideration was arrived at on a willing buyer willing seller basis taking into account, inter alia, the value of ZJG’s assets. The book value and net tangible asset value of ZJG were approximately CNY 1 as at 30 November 2012. Following the Sale, ZJG ceased to be a subsidiary of KCL. (Closing price: S$11.000, -%)

Source: PhillipCapital Research - 02 Jan 2013