Morning Market Commentary

- STI: -0.22% to 3218.3
- MSCI SE Asia: -0.21% to 879.8
- Hang Seng: -0.01% to 23329.8
- MSCI APxJ: -0.11% to 475.5
- Euro Stoxx 50: -0.51% to 2695.6
- S&P500: -0.31% to 1461.9

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Major stock indices (the S&P 500, DJIA, HSI and STI) are starting to consolidate their recent gains in the absence of a new catalyst to give markets a reason to climb higher.

Why the pause in the recent rally? We reckon that markets are:

(i) seeking greater clarification from the Federal Reserve Presidents' speeches later this week , following the revelation from Dec FOMC minutes that indicated asset purchases to the tune of US$85bn/mth might be scaled back and even halted by the end of 2013

(ii) taking cue from US 4Q earnings season which kicks off with Alcoa announcing results after Tuesday's closing bell (Wed morning, sgp time)

Markets might retrace from their recent highs if either/both of the following scenarios materialise:

(i) George (Kansas City Fed) and Bullard (St. Louis Fed) - scheduled to be voting members of the FOMC this year- support a premature scale back/termination of LSAPs, and/or

(ii) upcoming quarterly earnings disappoint

Note, clients can position for such a possible retracement with stock indices CFDs available from Phillip CFD. For the S&P 500, it needs to convincingly clear key resistance at 1470 level to charge higher, otherwise key support at its 50dma.

Macro Data:

In Euro zone, PPI fell by 0.2% m-m in Nov, the first m-m drop in 5 months, after the 0.1% m-m gain in Oct. On y-y basis, the PPI rose by 2.1%, slower compared to the 2.6% y-y gain achieved in Oct. In Germany, PPI rose by 1.4% y-y, after the 1.5% y-y gain in Oct. The ECB is holding the benchmark interest rate as low as 0.75% and we expect no change in the coming rate review meeting.

In Taiwan, inflation unexpected accelerated to 1.61% in Dec, from 1.59% in Nov, while the market was predicting a slower pace of 1.38%. The central bank refrained from raising interest rates last year to manage price gains as it tries to support the economy amid a global slowdown. Taiwan aims to keep inflation at below 2% in 2013 while boosting growth to 3.8%. A separate report shows that the island’s export rose by a significant 9.0% y-y in Dec, double the market expected 4.5% y-y pace, after a 0.9% y-y gain in Nov. The gain is mainly attributable to the rising the demand of China, Taiwan’s biggest trading partner. Shipment to China rose by 12.6% y-y in Dec, compared to 3.5% y-y gain in Nov. Going forward we expect China to continue add support to Taiwan’s export business.
 

Regional Market Focus

Singapore
 

• The benchmark STI was little changed at 3,218.26 (-0.22%). Trading volume was high at 6.0bn shares worth S$1.6bn.
• Penny stocks continued to dominate trading activities in the Singapore Market as average value per share traded remained at depressed levels for a second day in a row.
• In line with our macro view for the bottoming out of economic conditions in China, the FTSE ST China index (+12.9%) was the top performing FTSE index in the past 3 months.
• 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
 

• Volatility was high on Mon. Even if the composite SET index had traded to the upside since the start of the session, sporadic bouts of short-term profit taking however pared earlier gains to end the session in the red on Mon.
• The market seemed to be in a wait and see mode awaiting fresh trading cues while major factors surrounding the market were largely unchanged. Overall the SET index is therefore expected to remain stuck in range of 1408-1421 and swing between positive and negative territory today. The market may get little boost from heavy foreign buying of Thai shares as the positive impact could be somewhat tempered by huge net short position in derivatives taken by foreign investors.
• For short-term strategy, we recommend selective trading with focus on laggards/high dividend plays.   
• Resistance on the main index is pegged at 1421-1428 and support at 1408-1396 today.

Indonesia
 

• The Jakarta Composite Index (JCI) ended moderately lower on Monday (07/01), as most Asian markets paused after a solid start to 2013. The JCI shed 17.641 points, or 0.40%, to close at 4,392.379, with all but one sector finished lower. Miscellaneous industry sector lost 1.10%, mining sector dropped 0.89%, and consumer goods sector trimmed 0.76%. The LQ45 index, that tracks Indonesia’s blue-chip stocks, fell 3.212 points, or 0.43%, to close at 750.664. More than 149 shares gained, 105 shares declined, and 212 shares stayed unchanged Monday on the Indonesia Stock Exchange, where 4.118 billion shares worth IDR 4.284 trillion traded on the regular board. Foreign investors posted net purchases worth IDR 806.03 billion in total.
• The Jakarta composite index will likely decline today, after negative closes on US markets that weigh on markets in Asia today. We expect the JCI to trade within 4,362 – 4,443 range.

Sri Lanka
 

• Market moved marginally in to the negative territory despite the positive momentum experienced during the last Two weeks. Though the market moved on positive note during early hours, it gradually entered in to red region towards the end; however an increase in retailer participation was evident throughout the day.  The All Share Price Index (ASPI) marginally dropped 01.62 points to close the day at 5,746.09 while the S&P SL20 Price Index (S&P) dropped 01.67 points to close at 3,120.04. The market capitalization was LKR 2.21Tn.
• The day’s turnover stood at LKR 557.5Mn which is a 54.84% decrease against the previous trading day. The total traded volume for the day amounted to 20.95Mn shares; this was a 58.39% reduction against the previous trading day. A net foreign inflow of LKR 200Mn was recorded during the day.

Australia
 

• S&P/ASX 200 decreased by 0.14% or 6.45 points to close at 4,717.33.

Hong Kong
 

• Local stocks swung between gain and loss. The HSI and HSCEI dropped 1 point and 35 points to 23329 and 11973 respectively. The HSI market volume was 81.279 billion, rose 4.9% dod.
• We expect the market to drop slightly in short term as investors waiting the new policy from China government. Investors should stand on sideline or buy A share’s ETF at current price level, we maintain our cautious bullish view on the A share market.
• As the trading volume surged recently, investors turned optimistic and risk tolerant level increased, especially in the IPO market. About 70% of HKEX’s revenue depend on trading volume, thus, we suggest investors to buy HKEX (388.HK) for long term holding. Aggressive investors are also suggested to use derivatives for grasping the short term trading chance during the trading hours.
• Technically, the HSI is expected to gain a support from 23000 level, major resistance will be 23500 level.

Morning Note

Company Highlights

L.C. Development Ltd announced that its wholly-owned subsidiary, LCD (Indochina) Pte Ltd (“LCDI”), has entered into a share purchase agreement with Auslaos Investments Pty Ltd (the “Vendor”) to acquire from the Vendor a 15% equity interest (the “Acquisition”) in Gateway Enterprise Company Limited (“Gateway”).  Prior to the Acquisition, LCDI already owns 85% of  the issued and paid up capital of Gateway, a company incorporated in Lao People’s Democratic Republic, and is a special purpose company which owns and operates the serviced residence, Parkview  Executive Suites located in Vientiane, Laos (“Parkview”).  On completion of the Acquisition, Gateway would become a wholly-owned subsidiary of LCDI. (Closing price: S$ 0.158, +1.282%)

CSE Global Limited (CSE) announced that its wholly-owned Singapore subsidiary, CSE Transtel (Singapore) has secured the third Telecommunication order as part of the Inpex project in Australia. The order further entrenches CSE Transtel as the leading Telecommunications System Integration partner of choice for customers in the resources sector. CSE is also pleased to announce that CSE-Controls Limited, its wholly-owned UK subsidiary, has recently been awarded a prestigious contract in the UK defence sector; secured due to our ideal locations and capability to provide a full turnkey solution to meet the client requirements.  (Closing price: S$ 0.790, +1.935%)

AusGroup Limited subsidiary, AGC Industries Pty Ltd (‘AGC’) announced it has secured fabrication work with Fugro-TSM for Woodside’s Greater Western Flank (GWF) project. The contract is for the fabrication of post metrology subsea spools for the first phase of the project which will commence immediately for a period of 12 months. The work will be performed in Kwinana and at the Australian Marine Complex (AMC) quay side facility in Henderson, south of Perth, Western Australia. It is expected to create work for approximately 30 new staff, based at the AMC. Upon completion, the spools will be loaded out at AMC Henderson for marine transportation to the Greater Western Flank area, off the north-west coast of Australia. (Closing price: S$ 0.585, +11.429%)

Source: PhillipCapital Research - 08 Jan 2013