Morning Market Commentary

- STI: +1.09% to 3201.7
- MSCI SE Asia: +0.85% to 878.0
- Hang Seng: +2.89% to 23312
- MSCI APxJ: +2.14% to 476.3
- Euro Stoxx 50: +2.86% to 2711.3
- S&P500: +2.54% to 1426.4

Property Sector Update:
By Bryan Go, Investment Analyst.

URA flash estimate shows private residential property price index grew at a faster pace of 1.8% q-q in 4Q12 to reach 211.9 points, higher than the 0.6% growth in the previous quarter. Prices increased 2.8% for the whole 2012, lower than the 5.9% growth seen in 2011. Prices of non-landed private residential property in OCR increased the most amongst the regions, rose 3.4% q-q, followed by 0.9% q-q in RCR and 0.8% q-q in CCR. HDB’s flash estimate of resale price index shows prices grew 2.5% q-q in 4Q12, implied an increase of 6.6% for the whole 2012. The strong price growth in 2012 is higher than our expectation of 0-2% growth for the private residential property, and we think the risk of further introduction of cooling measures by the government has increased following the strong price growth in 4Q12. We maintain our view that residential prices to remain strong in 1H13 but the increased physical completion and more competitive rental market ahead could result in 0-5% downward correction for 2013. We continue to prefer CapitaLand (TP: $3.97)

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

US Congress has reached a fiscal compromise, but that is not a grand bargain. Fiscal uncertainty has merely abated -for the moment. Much as we dislike to be party-poopers, we share the caution of forex traders (where the initial optimism in the forex market is already starting to fade) on account of the following unresolved issues which will return to haunt the US in another 2 months: (i) delayed spending cuts of US$110bn as well as (ii) the need to raise its debt ceiling (which the Republicans will use as a bargaining chip to extract more spending cuts). So over the next couple of weeks, we expect bouts of political brinkmanship which will rattle markets' nerves. 

Rounding up market action yesterday/overnight- Markets heaved a sigh of relief, with the S&P 500 and DJIA rallying from the opening till the closing bell and the STI gapping up higher (clearing the psychological 3200 level). This exuberance in equity markets was largely due to Congress reaching a compromise bill which -amongst other measures- raised taxes on the wealthiest decile of Americans (individuals earning more than $400,000 and households earning more than $450,000), while leaving the middle class largely unscathed.

Outlook for 2013. In 2013, the global economy is likely to remain in a fragile equilibrium, propped up by G4 central banks undertaking a monetary easing bias, resulting in a race to the bottom for currencies. Meanwhile, global demand is likely to remain sluggish with G2 economies (US and EZ) continuing to deleverage and kick the can (fiscal woes) further down the road. Nonetheless, we are seeing signs of green shoots in US, China as well as most Asian economies which saw a return to expansion manufacturing activity as indicated by their recent PMIs.

Macro Data:

In US, the ISM manufacturing index rose from 49.5 (multi-year low) in Nov to 50.7 in Dec, indicating that manufacturing activity has returned to expansionary territory.

In the Eurozone, the bloc remain mired in a recession with the manufacturing slowdown becoming more protracted. Specifically, EZ manufacturing PMI declined 0.1pt m-m to 46.1 in Dec, on account of a slump in new orders.
North-east Asia saw an expansion in manufacturing activity in Dec after months of contraction, benefitting from a gradual global economic recovery (particularly in China). In South Korea, manufacturing PMI improved from 48.2 in Nov to 50.1 in Dec. In Taiwan, manufacturing PMI accelerated to 50.6 in Dec, up from 47.4 in Nov.

In Indonesia, inflation stood at 4.3% in December, broadly unchanged from the preceding month. Recall Bank Indonesia stood pat in December (consistent with our expectations), maintaining the benchmark policy rate at a record low 5.75% for the 11th consecutive month. We expect Bank Indonesia to continue to stand pat on the back of lower inflation expectations as well as resilient domestic demand.
 

Regional Market Focus

Singapore
 

• The benchmark STI rallied to 3,201.74 (+1.09%) in response to positive news from the US.
• The Singapore Market celebrated the lifting of a key overhang on financial markets for the past year with some form of a resolution to the US Fiscal issues. Among the STI components, cyclical stocks that are sensitive to the economic cycles led the market rally. Commodities and Supply Chain managers, Wilmar (+5.7%) & Olam (+5.8%), were the largest gainers in the index.
• The ISM manufacturing index released overnight was also positive at 50.7 and we expect this near term “risk-on” rally to continue in sectors sensitive to economic cycles.   
• 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 rose sharply on Wed, following rallies in global stock markets. The rally was led by bank, petrochemical, property and construction materials stocks. The Thai baht appreciated rapidly to around 30.35 per US dollar.
• The Thai baht appreciated more rapidly against the US dollar but the unit started to stabilize in early trade on Thu at 30.33 per US dollar like the greenback, which held steady in range after the previous session’s steep slide. Foreign buying spree continued in the Thai stock market but the buying amount remained low though the composite SET index rallied by as much as 15 points on Wed. On the other hand, foreign investors held a slight amount of short positions in derivatives market. Foreign fund flow will still bear close watching going forward. Although sentiment remains bullish in the near term, we believe the market may be vulnerable to the risk of profit taking along the way in the face of uncertainties ahead. In addition, the Thai stock market’s record breaking rally may also give a good excuse for LTF/RMF unit-holders that have held for at least five years to take profits.
• The short-term strategy is to gradually book partial profits
• Today we peg resistance for the SET index at 1412-1419 and support at 1400-1394.

Indonesia
 

• Most Indonesian stocks advanced on the first trading day of 2013, with commodity stocks gained the most and basic industry sector fared worst. The Jakarta Composite Index (JCI) gained 29.788 points, or 0.69%, to close at 4,346.475. The advance on Wednesday (02/01) was boosted by positive sentiments in the first trading day of the year, and as most stock markets in Asia rallied after the US House of Representatives voted in favor of legislation to undo much of the fiscal cliff. Six of the 9 major industry groups climbed, with mining sector rallied 5.65%, agriculture sector surged 2.88%, and trade and services sector gained 1.60%. LQ45 – the index trailing Indonesia’s blue-chip shares – added 7.747 points, or 1.05%, to close at 742.789. For every blue-chip stock that declined, more than 3 advanced on Wednesday. More than 143 shares advanced, 103 shares declined, and 220 shares remained unchanged Wednesday on the Indonesia Stock Exchange.
• The Jakarta Composite Index potentially will continue advancing today, after rallies on US markets that may fuel sentiments in Asia this morning. We expect the JCI to trade within 4,294 – 4,391 range.

Sri Lanka
 

• The Colombo bourse commenced the year 2013 today on favorable eminence. Two indices retained on positive closures largely backed by the accelerated price appreciations on individual stocks observed during the latter part of the day. This recovery was mainly derived on the speculation through the further reductions of interest rates of risk free treasury bills on today’s auction. Participation of foreign parties provided immense contribution to the daily market turnover through the LKR 1.39Bn worth of crossing recorded on COMB, which provided 83% subscription to the daily turnover. The Benchmark ASPI mounted at 5,683.79 gaining 40.79 points and S&P SL20 index increased by 5.55 points to end at 3,090.88. The market capitalization at the closure was LKR 2.18Tn.
• The day’s turnover stood at LKR 1.68Bn. The total traded volume for the day consisted with 45.6Mn shares; which was a 208.65% increase against the previous trading day. Price gainers outnumbered the price losers at a ratio of 170:42. A net foreign outflow of LKR 17.2Mn has been recorded during the day.

Australia
 

• Australia continued to rally to a 19 month high, boosted by run ups in mining stocks.
• S&P/ASX 200 index was up 1.2% on Wednesday, the biggest one-day gain in five months, according to a Reuters report.

Hong Kong
 

• Local stocks surged in the fist-trading day of 2013. The HSI and HSCEI rose 655 points and 461 points to 23311 and 11897 respectively. Market volume was 82.436 billion.
• In fact, all the HSI weighted stock rose yesterday, especially for China financial institutions (a rumor that China insurance companies can start fund businesses). China Life (2628) rose 7% to 27 HKD. NCI (1336) surged 13% to 33.15 HKD. Investors are suggested to invest in these sector after a technically drop.
• Technically, the HSI is expected to gain a support from 23000 level, major resistance will be 23500 level.

Morning Note

Company Highlights

Thai tycoon Charoen Sirivadhanabhakdi extended his S$8.88-per-share offer for majority control of Fraser and Neave (F&N) by another week but kept his bid amount unchanged. Shareholders of the property and beverage conglomerate now have until the close of Jan 10 to accept Mr Charoen's offer, which remains lower than a rival S$9.08 bid by a consortium led by property developer Overseas Union Enterprise (OUE). (Closing price: S$9.670, -0.3%)

Global Logistic Properties Limited, one of the world’s largest providers of modern logistics facilities, with a market leading presence in China, Japan and Brazil, announced that it has leased approximately 10,400 square metres (“sqm”) (112,000 square feet (“sq ft”)) to Tesco, one of the world’s largest supermarket chains, at GLP Park Jiashan, Zhejiang Province in Eastern China. This marks the first direct leasing agreement between Tesco and GLP China. Tesco also operates in another GLP property in Guangzhou, Guangdong Province through a contract with a third party logistics provider. (Closing price: S$2.770, -0.4%)

Manufacturing Integration Technology Ltd announced that the Company has exercised the Option to purchase an additional 1,100 shares representing 4.4% of the issued share capital in Generic Power Pte Ltd (GPPL) for a total consideration of $580,522.05 on 2 January 2013. Following this acquisition, the Company now holds 25,000 ordinary shares representing 100% of the issued and paid up capital of GPPL. (Closing price: S$0.080,- %)

TA Corporation Ltd announced that its subsidiary, Sino Holdings (S’pore) Pte Ltd will joint venture with Synergy Resources Group Pte. Ltd to pursue the business in the sale and distribution of petroleum fuels and lubricant in Myanmar. (Closing price: S$0.420, +6.3%)

United Overseas Bank Limited said it had appointed Ong Yew Huat as a non-executive and non-independent director with effect from Jan 2, 2013. Mr Ong was executive chairman of Ernst & Young LLP from 2011 until his retirement on Dec 31, 2012. (Closing price: S$19.920, +0.6%)

Source: PhillipCapital Research - 03 Jan 2013