Morning Market Commentary

- STI: +0.72% to 3224.8
- MSCI SE Asia: +0.64% to 883.6
- Hang Seng: +0.37% to 23398.6
- MSCI APxJ: +0.46% to 478.5
- Euro Stoxx 50: -0.37% to 2701.2
- S&P500: -0.21% to 1459.4

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Amber alert! Asset purchases to the tune of US$85bn/mth -with the asset mix as US$40bn in MBS and US$45bn in Treasuries (long-dated, unsterlised)- might be scaled back and even halted by the end of 2013, according to the minutes of the Dec FOMC. Nonetheless, guidance of Fed fund rates sounded relatively more dovish; though that's now predicated on labour market projections (around 6.5%), it is consistent with the earlier mid-2015 guidance.

Why the hawkish tone on asset purchases?  We reckon it is not because the Fed is more optimistic about the US economy (with fiscal uncertainties still unresolved). But rather the Committee is concerned about the effectiveness of the LSAPs as well as the potential difficulty in implementing an exit strategy. Specifically, asset purchases of US$85bn/mth translate to around US$1 trillion a year, adding on to the Fed's already bloated balance sheet. Such large-scale asset purchases -if prolonged- results in the possibility of inflation expectations spiralling out of control, posing difficulty for the Fed to implement any exit strategy when the economy/labour market improves substantially.

What does the hawkish tone on asset purchases mean for the various asset classes?
(i) Market's expectations would start to build in, weighing on MBS and Treasuries and thereby capping any upsides.
(ii) This is a clear positive for the US Dollar, which consequently is a clear negative for Gold in the near term.
(iii) We should see a snap in the recent stock market rally.

STI might retrace (i.e. pull back) from its 16-mth high despite gapping up for the second consecutive day on Thursday. In fact, Thursday’s doji already signalled indecision in the market as to whether to charge even higher.
For the STI, should (i) the breakaway gap (that was first formed on Wed) be filled and (ii) the index drifts below the psychological 3200 level, traders can look to short (with tight stops) Straits Times Index SGD5 CFD (STI) / Singapore Index SGD20 CFD (SMSCI).

On the Singapore macro front, manufacturing activity (particularly the electronics cluster) continued to contract in Dec, a stark contrast to the improving manufacturing landscape in North-east Asia as well as the rest of the world. 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.
 

Macro Data:

In US, private payrolls increased by 215k in Dec as indicated by the ADP employment report, though that might not be corroborated by the BLS data.

In Singapore, manufacturing activity continued to contract -for the sixth consecutive month- with the PMI registering a reading of 48.6 in Dec, down 0.2 pts m-m from the preceding month on account of weaker new orders as well as export orders. Electronics also remain mired in contractionary territory, with the electronics PMI tumbling 0.8pts m-m to 46.6 in Dec.

In China, growth is gradually picking up with both services and manufacturing activity continuing to expand in Dec. Specifically, the official NBS services PMI rose 0.5pt m-m to 56.1 (a 4-month high) in Dec, owing to a surge in construction services. 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 the opening up of the services sector, continued infrastructure construction as well as proactive fiscal policies.

In Hong Kong, retail sales accelerated sharply by 8.1% y-y in Nov, faster than the pace of 3.6% registered in the preceding month.
 

Regional Market Focus

Singapore
 

• The benchmark STI rallied to 3,224.8 (+0.72%). Trading volume was high at 4.7bn shares worth S$1.8bn.
• Olam International and Wilmar International built on their strong openings at the start of the year by recording gains of 3.3% and 2.0% respectively.    
• Even after announcements by Simon Cheong, Chairman of SC Global, that his offer of S$1.80 per share would not be revised, Wheelock Properties continued to accumulate shares above the offer price. Wheelock Properties purchased another 700k shares at S$1.82 on 3rd Jan.   
• 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 ranges on Thu. Even though the bias was to the upside rather than the downside, gains were however capped by sporadic bouts of short-term profit taking. The composite SET index finished the session barely changed, up a mere 0.96 points on Thu.
• We think the SET index could possibly head into a correction mode today.
• The short-term strategy is to gradually book partial profits.
• Resistance on the main index is pegged at 1412-1419 and support at 1400-1388 today.

Indonesia
 

• The Jakarta Composite Index extended gains on the second trading day this year, as sentiments about year-start buoyed markets, and after the deal in the US to avoid a large economic impact from the so-called fiscal cliff lifted most equity markets. The JCI gained 52.783 points, or 1.21%, to close at 4,399.258. The advance included all 9 major sectors, led by miscellaneous industry with 3.78%-surge, construction sector with 2.47%-gain, and agriculture with 2.01%-climb. Most of the blue-chip stocks also rose, with the LQ45 index that tracks them advanced 10.345 points, or 1.39%, to 753.134, with 35 of its 45 constituents ended with gains. More than 170 shares advanced, 92 shares declined, and 201 shares stayed unchanged Thursday on the Indonesia Stock Exchange, where 4.4 billion shares worth IDR 5.434 trillion changed hands on the regular trading. Foreign market participants accumulated net purchases of shares valued at IDR 647.59 billion.
• The Jakarta composite index is likely to decline today, with negative sentiments from weak US market closes after the Fed signaled an end to its bond purchase program. We expect the index will move with the support at 4,341 and resistance at 4,431.

Sri Lanka
 

• The Colombo bourse unwrapped the second trading day of the New Year 2013 and conserved its first day’s impetus to successfully close the ASPI on green territory for the 6th consecutive day. The Indices experienced a steady growth throughout the day to reach its 11 week high, closing the index above 5,700 points. ASPI gained 46.66 points to close at 5,730.45 points (0.82%) whilst the S&P SL20 Price Index ended at 3,104.25 points (0.43%), also accumulating 13.37 points. The market capitalization hoisted to LKR 2.2Tn at the market closure.
• The turnover for the day was LKR 518.6Mn, which was a 69.08% reduction compared to the crossing abundant previous day.  The day recorded 9,526 trades resulting in 31.16Mn shares changing hands, which was a 31.62% reduction over the previous day’s volume. The market recorded a net foreign outflow of LKR 105.4Mn for the second consecutive day.

Australia
 

• S&P/ASX 200 increased by 0.74% or 34.74 points to close 4,740.68.

Hong Kong
 

• Local stocks swung between gain and loss. The HSI and HSCEI rose 86 points and 89 points to 23398 and 11987 respectively. The HSI rallied to the recorded high in 19 months. Market volume was 89.161 billion, rose 8.2% dod.
• In fact, we believe the market may drop slightly in short term, since most of the stock’s RSI rose above or near 80, and investors are too optimistic to the China market. Investors are suggested to stand on sideline and wait for a clear trading signal.
• Technically, the HSI is expected to gain a support from 23000 level, major resistance will be 23500 level.

Morning Note

Company Highlights

CapitaLand Ltd is restructuring its businesses to focus on its core markets of Singapore and China, which together account for more than half of its revenue. CapitaLand, about 40 per cent-owned by Singapore state investor Temasek Holdings, is considering exiting from the office and home segments in the United Kingdom and India, but will remain invested in serviced residences and malls. (Closing price: S$ 3.840, +2.1%)

CATALIST-listed gold-mining company CNMC Goldmine Holdings announced that it had produced 740.82 ounces of gold dore bars from its new heap leach facilities. The bars were made at its inaugural gold pour conducted on Dec 30 in Kelantan state in Malaysia. Its heap leach facilities - delayed since its initial expected start date in the fourth quarter of 2011 - had received approval from the Malaysian authorities on Nov 6 and started operations shortly after, the firm said. It would add about 1 million tonnes of capacity each year to the firm's current 60,000 tonnes with its vat leaching facilities. Production at the heap leach will go into full swing once the monsoon season ends in February, said its chief executive Chris Lim. (Closing price: S$ 0.310, +3.3%)

The consortium led by property and hospitality group Overseas Union Enterprise (OUE) has extended its S$9.08-per-share offer for Fraser and Neave (F&N) to Jan 14 amid ongoing questions about its alliance with Kirin Holdings. OUE's bid remains the highest on the table. Its bidding rival, Thai tycoon Charoen Sirivadhanabhakdi, on Wednesday extended the deadline for his S$8.88-per-share offer to Jan 10. Both offers are conditional upon the bidder gaining majority control of F&N, a property and beverage conglomerate. (Closing price: S$ 2.790, -0.4%)

Roxy-Pacific Holdings has bought a freehold residential site in Rochor district for $24.5 million. The Wilkie Terrace site has an estimated land area of 9,324 sq ft and an existing gross plot ratio of 2.1 under the 2008 Master Plan for residential apartment development. The deal was sealed through RH Rochor, an indirect subsidiary of the company through Roxy Homes. RH Rochor intends to amalgamate the site with another freehold site that was acquired in November 2012 for residential apartment development. Roxy-Pacific said the cost of the acquisition will be financed by internal funds and bank borrowings. (Closing price: S$ 0.580, +2.7%)

Source: PhillipCapital Research - 04 Jan 2013