Morning Market Commentary

- STI: +0.46% to 3220.4
- MSCI SE Asia: +0.29% to 881.0
- Hang Seng: +0.46% to 23218.5
- MSCI APxJ: +0.37% to 474.5
- Euro Stoxx 50: +0.56% to 2706.4
- S&P500: +0.27% to 1461.0

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

With the VIX ('fear index') tumbling to a 5-year low, are markets too complacent in view of the lingering risks on the US and EU fiscal front?

Well, tail risks -or rather the perception of tail risks- have receded. We think that the investment outlook has improved but challenges remain. Sychnronised G4 monetary easing, apart from provoking a race to the bottom among major currencies, will provide downside support for risk-assets (such as equities) - which although having responded well to the cyclical upturn (as reflected by the uptick in JPM Global PMI), still face challenges from unresolved fiscal issues on the G2 front (US and EU).

Markets edged up yesterday but still remain in a consolidation phase, having retraced (i.e. pulled back) from their recent highs.

In Japan, the Nikkei [Nomura ETF Nikkei 225 (1329.JP); Japan 225 Index JPY100 CFD] has retreated from its recent high but market sentiment still remains buoyant as PM Shinzo Abe focuses the thrust of economic policies on boosting the flagging corporate sector with an emphasis on a weaker yen. Specifically, we should expect more aggressive monetary easing (with possibly 2% inflation target) as well as fiscal pump priming.

For the STI, it will continue to wade along  its 10dma key support in the absence of a new catalyst, which makes a breakout (up/down) unlikely.

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 Thailand, the central bank (BoT) stood pat in Jan, maintaining the benchmark one-day bond repurchase rate at 2.75% -consistent with our expectations- in view of resilient domestic demand as well as an improving global economy.

In Malaysia, exports rebounded 3.3% y-y in Nov, reversing from the 3.2% decline in the preceding month, on the back of gains in electronics and petroleum shipments. We maintain our view that BNM will continue to stand pat, and re-assess its policy rate position post-elections (barring any extreme deterioration in the global macro environment).

In Germany, industrial production rose by 0.2% m-m in Nov, less than the market expected 1.0% m-m gain, after it fell by 2.0% m-m in Oct. The weak industrial production gain reflected the weak manufacturing activities in Europe’s largest economy. The economic environment will be more difficult this year than in 2012, German Chancellor Angela Merkel said on Dec. 31. Europe’s sovereign debt crisis is “far from over,” though progress has been made and the “reforms that we’ve agreed on are starting to take effect.”

In Australia, retail sales unexpectedly fell by 0.1% m-m in Nov, while the market was predicting a 0.3% gain, after it remained stagnant in Oct, reflecting a weak consumption. A separate report shows that new private home sales rose by 4.7% m-m in Nov, after it advanced 3.6% m-m in Oct. The RBA has cut the benchmark rate to 3.0% to bolster the domestic economy; however the weak response from household may motivate the government to make further loosening.
 

Regional Market Focus

Singapore
 

• The benchmark STI inched up to 3,220.41 (+0.46%). 4.6bn shares were traded with value worth S$1.9bn.
• After the relief rally from a partial resolution to the US fiscal cliff issues, we believe that investors should look to the earnings season for cues to the next leg up for stocks. The STI seems to have taken a pause after the strong run-up in recent weeks.
• 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 extended its strong run on Wed but sporadic bouts of intraday profit taking along the way however limited gains. Speculative buying in energy, petrochemical and tourism counters led the market’s advance.
• We expect the composite SET index to continue its sideways-up action today, awaiting fresh trading cues but periodic bouts of profit taking may possibly kick in along the way. External factors would largely continue to dictate the direction of the market for the meantime with eyes on ECB and BOJ meetings amid expectations of further monetary easing, a move that could strengthen the US dollar against the euro, Japanese yen and Thai baht. In today’s early trading (0755 hrs Thailand time), the baht weakened slightly to 30.38 per US dollar. The market would also keep an eye on economic data coming up and China’s trade data would be quite important as it could reflect the recovery of the Chinese economy. Today we expect the SET index to trade in a range of 1415-1430.  
• Volatility is expected to reign supreme along the way. For this reason, investors should be cautious in short-term trading.
• Today we peg resistance for the SET index at 1428-1435 and support at 1418-1412.

Indonesia
 

• Most Indonesian stocks fell Wednesday (09/01), amid positive closes on Asian markets after the start of US earnings season. The Jakarta Composite Index lost 34.62 points, or 0.79%, to close at 4,362.93. The decline included seven of the 9 major industry groups, with trade and services sector lost 0.94%, financial shed 0.62%, and mining dropped 0.49%. Most of the blue-chip stocks also fell, with the LQ45 index that tracks them slipped 3.989 points, or 0.53%, to 748.232. More than 150 shares declined, 91 shares advanced, and 225 shares remained unchanged Wednesday on the Indonesia Stock Exchange, where 4.467 billion shares worth IDR 4.69 trillion changed hands on the regular market. Foreign investors posted net purchases worth IDR 125.881 billion.
• The JCI looked set for a climb today, after positive closes on US markets overnight that spurs positive sentiments in Asia this morning. We expect the composite index to trade with support and resistance at 4,313 and 4,437 respectively.

Sri Lanka
 

• Though the Colombo bourse opened the day positively, but began to experience a slight meltdown from the second half of the day. With lot of variations both indices closed the day in the marginal red region. Retailers’ subscription for the market was noteworthy today. The All Share Price Index (ASPI) marginally dropped 6.83 points to close the day at 5,745.10 while, the S&P SL20 Price Index (S&P) dropped 3.10 points to close at 3,120.87. The market capitalization was LKR 2.2Tn.
• 238 counters traded during the day resulting a LKR 497.2Mn turnover, which was 60.96% reduction compared to the previous trading day.  The day recorded 4,434 trades to result in 33.15Mn shares changing hands which is an increase of 88.37% compared to previous day’s volume. The foreigners were net sellers for the second consecutive day with a net outflow of LKR 31.4Mn.

Australia
 

• S&P/ASX 200 increased by 0.38% or 17.89 points to close at 4,708.14.

Hong Kong
 

• Local stocks rallied The HSI and HSCEI rose 107 point and 103 points to 23218 and 11817 respectively. Market volume was 75.472 billion, dropped 8.8% dod.
• After short term consolidation the HSI rebounded, the market close near day high, which is a positive signal in future market. Investors may buy A share’s ETF at current price level. We maintain our cautious bullish view in the A share market, investors should also pay attention to the major economic indicators of China, which will be announced in today and tomorrow.
• Technically, the HSI is expected to gain a support from 23000 level, major resistance will be 23500 level.

Morning Note

Company Highlights

United Envirotech Ltd. announced that the Company has on 8 January 2013 entered into: (a) a sale and purchase agreement (the “GHL S&P Agreement”) with Dr. Ge Hailin (“GHL”), an existing shareholder of MTL, holding in aggregate 277,817,724 ordinary shares, representing approximately 10.46%  of the existing issued and paid-up share capital of MTL, in relation to the proposed acquisition of 130,000,000 shares (the “GHL Stake”) in the capital of MTL (the “GHL Acquisition”) free from all Encumbrances (as defined herebelow) and with all rights and advantages attaching thereto as at the GHL Completion Date (as defined herebelow), including all dividends and distributions declared, made or paid on or after the GHL Completion Date with respect to the GHL Stake, for an aggregate consideration of S$13 million; and  (b) a sale and purchase agreement (the “PSH S&P Agreement”) with Ms. Pan Shuhong (“PSH”), an existing shareholder of MTL, holding directly and indirectly 1,040,781,124 ordinary shares, representing approximately 39.19% of the existing issued and paid-up share capital of MTL, in relation to the proposed acquisition of 220,000,000 shares (the “PSH Stake”) in the capital of MTL (the “PSH Acquisition”) free from all Encumbrances and with all rights and advantages attaching thereto as at the PSH Completion Date (as defined herebelow), including all dividends and distributions declared, made or paid on or after the PSH Completion Date with respect to the PSH Stake, for an aggregate consideration of S$22 million. The GHL S&P Agreement and the PSH S&P Agreement (collectively the “Sale and Purchase Agreements”) together comprise the purchase by the Company, and the sale by each of GHL and PSH (collectively the “Vendors”), of 130,000,000 and 220,000,000 ordinary shares in the capital of MTL (the “Transaction”).  (Closing price: S$ 0.545, +5.825%)

Source: PhillipCapital Research - 10 Jan 2013