Morning Market Commentary

- STI: +0.01% to 3225.22
- MSCI SE Asia: -0.22% to 881.7
- Hang Seng: -0.29% to 23331.1
- MSCI APxJ: -0.51% to 476
- Euro Stoxx 50: +0.30% to 2709.4
- S&P500: +0.49% to 1466.5

MARKET OUTLOOK:
By Joshua Tan, Hd of Research

Strictly, the technical signals for the STI, HSCEI, HSI suggest a pause after fairly strong run-ups, as price action off Thu and Fri is indecisive after gap-ups (STI), and long candlesticks (HSCEI, HSI). However, the S&P500’s positive close on Fri (on good non-farm payrolls report) ameliorated Thu’s indecisive doji (after the Fed minutes suggested the possible end of QE in 2013), so we suspect the S&P500 could actually make a test of the 1470 resistance tonight. As markets look ahead, we could have a positive Monday today in Asia after all, though we’d like to make clear that short term trading signals are not the cleanest at the moment for the STI, HSCEI, HSI. The HSCEI in particular is at the doorstep of heavy resistance at 12,000.

Instead, clients should take heed that macroeconomic data has been turning more positive globally (as we have been saying since late November). Underlying fundamentals are getting better albeit key risk ahead remains the US sequester/debt ceiling debate in Feb. We think the investment climate is cautiously positive, unless the US sequester totally unravels (not our base case).

We are Overweight China-HK stocks, with Hd of Research China liking China Merchants Bank (3968 HK) and Central China Real Estate (832 HK); while Hd of Research Hong Kong’s top picks are: Dah Sing Financial Holdings Ltd (440 HK) and HSBC (5 HK).

We are also Overweight SG stocks, with SG Equity Strategist favouring SIAEC, Capitaland, and Pan United.
 

Macro Data:

In the US, core capex continued to improve. Specifically, non-defense capital goods order ex aircrafts – a proxy for future business investment – rose 2.6% m-m sa in Nov, following a 3% increase in the preceding month. The ISM non-manufacturing index surged 1.4pts m-m to 56.1 in Dec- highest level since Feb 2012, signaling a faster pace of growth in activity in the services sector. On the labour front, unemployment remain at 7.8% sa in Dec, unchanged from the preceding month. Non-farm payroll employment expanded 155,000 in Dec, lesser than the 161,000 increase in the preceding month.

In the EZ, the bloc remains mired in recession. Specifically, the composite PMI gained 0.7pts m-m to 47.2 in Dec but still remain mired in contractionary territory, despite modest improvement in manufacturing as well as services activity.

In China, residential property price registered the first increase in 9 months in Dec -albeit at a modest rate (+0.03% on an annual basis), suggesting tepid signs of a housing market recovery.

In Philippines, CPI inflation gained 0.1%-pt m-m to 2.9% in Dec, on account of higher food prices. Recall the central bank stood pat in December, maintaining the benchmark rate at a record low of 3.5% (consistent with our expectations). Looking ahead, odds of a rate cut are low at this juncture in view of resilient domestic demand, with benign inflation to boot. But we do not rule out the possibility of the BSP either reducing policy rates or performing RRR cuts to temper the appreciation of the Philippine peso, rather than stimulating growth per se.
 

Regional Market Focus

Singapore

• The benchmark STI was little change at 3,225.22 (+0.01%). Trading volume was high at 7.1bn shares worth S$1.4bn.
• Following a 13% appreciation in the stock, our analyst downgraded his recommendation on Wilmar to Neutral. We expect CPO prices to weaken in 2Q13 due to seasonal effects, strong supply from Malaysia and Indonesia and record high inventories. Furthermore, soybean crushing margin had been in negative region since mid Oct.  
• 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 corrected towards a key 1400 level last Fri before it bounced back in the afternoon session as buying returned. Volatility reigned supreme.
• Investors should be more cautious in trading after Thai stocks suffered wild swings last Fri. Gains in US equities lifted by encouraging US jobs data may set the positive tone for the Thai stock market today but the upside appears limited in the face of several wildcards out there amid negotiations on US budget cuts and debt ceiling limit and timeline for the end of the Federal Reserve’s asset purchases. These uncertainties would leave the market vulnerable to bouts of profit taking. Even though foreign net purchases of Thai shares continued to the tune of over Bt2.8bn last Fri, foreign investors turned net short by 1,259 contracts in derivatives market, reflecting a lack of conviction about foreign accumulation of Thai shares.
• In the near term, we advise ‘sell on rise’ strategy in the current market.
• Today we peg resistance for the SET index at 1420-1430 and support at 1410-1404.

Indonesia

• Indonesian stocks treaded water Friday (04/01), as markets in Asia closed in a mixed bag after moderate declines on US equities overnight. The Jakarta Composite Index gained a modest 10.762 points, or 0.24%, to close at 4,410.020. The advance included six of the 9 major industry groups, with construction sector rose 1.52%, infrastructure sector gained 0.69%, and financial sector climbed 0.65%. The LQ45 index that measures Indonesia’s blue-chip stocks added 0.742 points, or 0.10%, to 753.876, with 18 of its components ended in positive territory. More than 135 shares climbed, 106 shares fell, and 224 shares stayed unchanged Friday on the Indonesia Stock Exchange. Trading volume in the regular market neared 3.8 billion shares, valued at more than IDR 4.3 trillion. Foreign investors posted net purchases of shares worth IDR 494.71 billion in total.
• The Jakarta composite index will likely advance today, as positive closes on US market on Friday may set grounds for Asian markets. We estimate the JCI will trade higher with support at 4,377 and resistance at 4,435.

Sri Lanka

• Rebuilt confidence amongst the market participants upheld the Colombo bourse to conclude the 1st week of Y2013 on an inspiring optimistic note. The market pursued its positive momentum throughout the week to reach its 12 week high on Friday. Though the retailers’ participation was marginally low, foreign activities were noticeably high and foreign contribution to the weekly turnover consisted with high value. Both indices recorded impressive appreciations throughout the week. All Share Price Index gained 140.58 points (2.51%) to close the week at 5,747.71 and S&P SL20 Index increased by 52.72 points (1.72%) and ended the week at 3,121.71.
• Total weekly turnover of LKR 3.72Bn was recorded, was a significant increase of 191.86% in comparison to the prior week. Meanwhile, the Friday’s turnover stood at LKR 1.23Bn largely backed by off-market deals. Total traded volume for the week was 141.8Mn shares, 195.68% increase compared to the previous week. Total market capitalization stood at LKR 2.21Tn. The market’s PER(X) and PBV(X) stood at 16.23 and 2.11 respectively at the weekly closure. The foreigner became net buyers during the week recording a net foreign inflow of LKR 401.8Mn.

Australia

• S&P/ASX 200 decreased by 0.36% or 16.9 points to close at 4,723.78.

Hong Kong

• Local stocks dropped. The HSI and HSCEI dropped 67 points and 49 points to 23331 and 11937 respectively. The HSI dropped after rallied to the recorded high in 19 months. Market volume was 77.492. billion, dropped 13.1% dod.
• As we expected 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

Ocean Sky International Limited has entered into a conditional sale and purchase agreement (the “Agreement”) today with Luen Thai Holdings Limited (“LTHL”) and its wholly owned subsidiary, Sunny Force Limited (the “Purchaser”), for the Purchaser to acquire all of the issued share capital, together with all rights, dividends, benefits and entitlements attaching thereto, of Ocean Sky’s wholly owned subsidiary, Ocean Sky Global (S) Pte. Ltd. (“OSG”) for an aggregate cash consideration of US$55 million, subject to the terms and conditions of the Agreement (the “Proposed Disposal”).  (Closing price: S$ 0.159, -%)

euNetworks Group Limited announced that an aggregate of 1 option (“Option”), to subscribe for or purchase an aggregate  of 20,000,000 shares of the Company (“Shares”) (representing 0.09 per cent. of the issued share capital of the Company as at the date hereof), has today been granted to an employee of a subsidiary of the Company (the “Grantee”) under the rules of the 2009 ESOS.  The volume weighted average price for a Share on the Singapore Exchange Securities Trading Limited (the “SGX-ST”) over the five (5) market days immediately preceding the date hereof is S$0.0142. The last transacted price of the Shares on the SGX-ST on 4 January 2013, being the market day immediately preceding the date hereof, is S$0.015.  (Closing price: S$ 0.015, -%)

Tiong Seng Holdings Limited would like to announce that the Company’s wholly-owned subsidiary, Chang De Investment Private Limited (“Chang De”), has injected an additional capital of RMB 56.5 million (approximately SGD 11.1 million) in  a subsidiary of the Group, Tiong Seng (Tianjin) Project Management & Consulting Co., Ltd. (“Chang Sheng”). Chang Sheng - is owned by Chang De (holding 49.0% equity interest) and another subsidiary of the Company or Group, Tianjin Zizhulin Chuanzhan Investment Co., Ltd (holding 51.0% equity interest).  
Following the aforesaid capital injection, Chang De now holds 97.0% while the latter holds 3.0%. Consequently, the Group’s overall effective equity interest in Chang Sheng will increase from 82.7% to 99.0%. (Closing price: S$ 0.230, +2.222%)

Riverstone Holdings Limited announced the issue and allotment of an aggregate of 50,000 ordinary shares in the capital of the Company at the exercise price of S$0.31 each, pursuant to the exercise of the 50,000 warrants. These new shares will be listed and quoted on the Singapore Exchange Securities Trading Limited on 7 January 2013. (Closing price: S$ 0.450, -1.099%)

Source: PhllipCapital Research - 07 Jan 2013