Morning Market Commentary

- STI: +0.18% to 3226.3
- MSCI SE Asia: -0.16% to 879.6
- Hang Seng: +0.59% to 23354.3
- MSCI APxJ: +0.67% to 477.6
- Euro Stoxx 50: +0.07% to 2708.3
- S&P500: +0.76% to 1472.1

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

US markets rallied on account of stronger-than-expected Chinese trade data, which corroborates with our view that the global economy is seeing nascent signs of a cyclical upturn.

Specifically, the S&P 500 rose to a five year high- inching up above the 1470 key resistance  level- led by financials (XLF: AMEX), which is one of our preferred US sectors (see GMAS dtd 4 Jan).

What lies ahead? Should the S&P 500 -convincingly- clear key resistance at 1470 level over the next trading session, traders can consider entering long positions in US S&P 500 Index USD5 CFD to ride the near-term rally.

Nonetheless, we think that the odds of S&P 500 clearing the next major resistance at the 1500 level in the near term is rather low at this juncture as the bulls will gradually be exhausted as they climb towards 1500. Furthermore, lingering uncertainties from unresolved fiscal issues on the G2 front (US and EU) persist, notwithstanding receding tail risks as well as an improved investment outlook.

This positive sentiment on the global economic cyclical upturn might spill over to Asian trading session today. While the STI formed a doji at yesterday's close, signalling indecision, the risk-on mood in the US markets overnight might provide the impetus for STI to drift higher.

On a separate note, George (Kansas City Fed) and Bullard (St. Louis Fed) - scheduled to be voting members of the FOMC this year- expressed caution over the ultra-loose monetary policy and were a tad hawkish. A premature scale back/termination of LSAPs -which will be a positive for USD-, cannot be ruled out.
 

Macro Data:

In the US, initial claims rose 4,000 wk-on-wk to 371,000 for the week ending Jan 5, largely due to the holiday seasonal effects. The 4wk moving average of claims rose 7,000.

Bank Indonesia stood pat in January (consistent with our expectations), maintaining the benchmark policy rate at a record low 5.75% for the 12th consecutive month. We expect Bank Indonesia to continue to stand pat on account of relatively benign inflation as well as resilient domestic demand. Nonetheless, there is scope for normalization in rates (ie. rate hikes), especially with upsides to inflation.

In Malaysia, industrial production expanded 7.5% y-y in Nov, faster than the pace of 6.4% registered in the preceding month. 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 Euro zone, the ECB held the benchmark interest rate unchanged at 0.75% as improving confidence has eased pressure on the ECB to reduce rates from the current level. ECB president Mario Draghi said the euro-area economy will slowly return to health in 2013 as the region’s bond markets stabilize after three years of turmoil.

In UK, Bank of England policymakers held benchmark interest unchanged at record low of 0.5% and refrained from adding further stimulus to economy. With the recovery still not on a sound footing, the BOE is likely to resume bond purchases at some point this year if the current high level of inflation at 2.7% subsided.

In China, export growth accelerated unexpectedly to 14.1% y-y, while the market was predicting a 5.0% y-y pace, after the 2.9% y-y gain achieved in Oct. A separate report shows that new RMB loan in Dec was 454.3 bn RMB, trailing the market expected 550 bn RMB, and the 522.9 bn RMB achieved in Nov, reflecting a weaker than expected domestic borrowing. The nation’s economy continues to bottom out, though we caution that this pace of export growth is unlikely to sustain in the current global outlook due to the prolonged Europe debt crisis.

Regional Market Focus

Singapore
 

• The benchmark STI grind higher to 3,226.25 (+0.18%). 4.3bn shares were traded with value worth S$1.9bn.
• The cyclical rally remains intact (at least in the near term) with various risk assets continuing their upwards trajectory. The release of positive trade data from China drove shipping giant, NOL (+7.2%) and Chinese shipbuilder, Yangzijiang (+5.4%) upwards on high trading volume.
• 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 Thu. The composite SET index opened the session higher to test 1430 points on better-than-expected economic data out of China but bouts of selling which accelerated in the afternoon trade led the index to end the day down by 17 points.  
• Yesterday Thai stocks saw a big correction for the first time in several sessions on heavy foreign selling of up to Bt4.6bn after a sustained rally of as much as 150 points or 12% in the composite SET index for nearly two months since late Nov 2012. Citigroup’s downgrade of Thailand to ‘neutral’ from ‘overweight’ could further keep up pressure on the Thai stock market. Some rebound is however likely after yesterday’s sharp correction but gains are unlikely to be strong. We think the correction may also encourage holders of LTF/RMF units that have been held for at least five calendar years this year to take profits as a breakdown below 1400 could suggest the potential for further pullback towards 1380.
• The short-term strategy is to be selective in stocks and gradually book profits on rise.
• Resistance on the main index is pegged at 1410-1414 and support at 1405-1398 today.

Indonesia
 

• Most Indonesian stocks declined Thursday (10/01), as the Rupiah weakened on current account and trade deficits, amid higher closes on Asian markets after upbeat trade data from China. The Jakarta composite index lost 45.563 points, or 1.04%, to close at 4,317.365. The drop included seven of the 9 major industry sectors, with miscellaneous industry sector shed 3.85%, agriculture lost 1.87%, and consumer goods plummeted 1.44%. Shares of Astra International (ASII), the largest component in the JCI by market capitalization, fell 350 points, or 4.55%, to IDR 7,350 per share. The LQ45 index that trails blue-chip stocks shed 10.702 points, or 1.44%, to close at 733.906. More than 171 shares declined, 79 shares advanced, and 218 shares remained unchanged Thursday on the Indonesia Stock Exchange, where 3.578 billion shares with the total value of IDR 4.163 trillion traded on the regular board. Foreign market participants accumulated net sales worth IDR 230.81 billion.
• The JCI will likely turn higher today, after higher closes on US markets overnight driven by better-than-expected China export data. We expect the JCI to trade with support and resistance at 4,253 and 4,410 today.

Sri Lanka
 

• The Colombo bourse displayed a negative image throughout the day and concluded on a marginal negative note. However, participation of the corporate sector was highly evident for the fundamental counters. The All Share Price Index (ASPI) dropped 12.89 points during the day and closed at 5,732.21, however, the S&P SL20 Price Index (S&P) closed flat movement at 3,121.53, gaining tiny 00.66 points. Furthermore, the market capitalization for the day stood at LKR 2.20Tn. The day recorded a turnover of LKR 1.01Bn; which was a significant 103.77% increase against the prior trading day. Furthermore; the total crossings which amounted to LKR 635Mn accounted for heavy 62.7% of the day’s turnover.
• The best performers under the sectorial summary were Bank Finance & Insurance (LKR 457Mn) and Beverage Food and Tobacco (LKR 248Mn) respectively. The total traded volume for the day amounted to 16.6Mn shares; this was a 49.85% reduction against the previous trading day. During the day, Price losers outnumbered the price gainers at a ratio of 107:57 and the day recorded a net foreign inflow of LKR 139.5Mn.

Australia
 

• S&P/ASX 200 increased by 0.31% or 14.82 points to close at 4,722.96.

Hong Kong
 

• HSI rose 0.59% or 135.84 points to close at 23,354.31.

Morning Note

Company Highlights

Ocean Sky International Limited announced that the Company’s whollyowned subsidiary, Ocean Sky Marketing (H.K.) Limited (“OSMHK” or “Vendor”) has entered into a sale and purchase agreement (the “Sale and Purchase Agreement”) with Mr. Sit Loi Keung (the “Purchaser”) on 8 January 2013 in respect of the sale of property located at the 33rd floor duplex flat D of Tower V, The Waterfront, No 1 Austin Road West, Kowloon, Hong Kong with car parking space no. 128 on basement two (the “Property”) pursuant to the exercise of the option to purchase by the Purchaser (the “Proposed Sale”) (Closing price: S$ 0.176, +1.734%)

Singapore Technologies Engineering Ltd (ST Engineering) announced that its aerospace arm Singapore Technologies Aerospace Ltd (ST Aerospace) has secured new contracts worth about $450m in the fourth quarter of 2012.  The contracts are for airframe, component and engine maintenance, as well as engineering and development, which will be carried out through its global network. In the quarter, ST Aerospace redelivered 165 aircraft for airframe maintenance and modification work.  For passenger-to-freighter (PTF) conversions, it redelivered five converted Boeing 757-200 freighters, bringing the total number of PTF redelivery in 2012 to 16.  Besides airframe redeliveries, ST Aerospace processed 9,847 components, 61 landing gears and 78 engines for both commercial and military customers. (Closing price: S$ 3.850, +0.260%)

Source: PhlilipCapital Research - 11 Jan 2013