Morning Market Commentary

- STI: -0.30% to 3216.5
- MSCI SE Asia: -0.12% to 878.6
- Hang Seng: -0.39% to 23264.1
- MSCI APxJ: -0.37% to 475.9
- Euro Stoxx 50: +0.35% to 2717.8
- S&P500: -0.00% to 1472.1

Property Sector Update:
By Travis Seah, REIT Analyst

With effect of 12 Jan-13, industrial properties that are sold within three years of purchase are imposed with seller’s stamp duty of between 5% and 15%. This is a temporary measure and will be reviewed by the authorities when the market softens. We are not surprise as the URA industrial property price index had surpassed the previous peak by 59.3% to 183.3 in 3Q12. In particular, 3Q12 marked the highest percentage increase of 8.8% since the bottom in 3Q09.
 
The cooling measure is targeted directly on speculators to deter them from artificially inflating the industrial property asset. In the presence of new measure, industrial property prices will still continue its upward trajectory but at a slower pace as demand from end-users and long-term investors will support the prices. End-users who feel the pinch from the rising business costs will exit the leasing market and purchase their own factory units to keep the rental cost in check. On the other hand, long-term property investors being squeezed out from the stringent measures on residential market will seek opportunities in industrial strata units.   We opine this measure will not have much impact on industrial REITs and maintain neutral on Sabana REIT on valuation ground.

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Stay calm and hunt for bargains! Expect property counters and maybe even banking stocks to see a knee-jerk reaction when SG markets open today as investors respond to the latest -and most comprehensive round of property cooling measures. Amid this hysteria. pull-backs offer an attractive entry point to enter long/ accumulate our SG Equity Strategist's preferred stock picks: SIAEC, Capitaland, Pan United.

Global markets are broadly in a consolidation phase, owing to a lack of catalyst for bulls to charge ahead. Instead, markets might pull back amid lingering uncertainties over unresolved issues on the US fiscal front. Nonetheless, such pull back in prices serve as an attractive opportunity to accumulate our OWs on China, Hong Kong (on compelling valuations),  Philippines, Singapore and Thailand equities -in this particular pecking order.
 
In the US, the S&P 500 is at a 5-yr high after clearing the 1470 resistance level- albeit not convincingly. Fri’s ‘dragonfly doji’ hints of indecision and portends a possible pull-back in the near term. [SPDR S&P 500 ETF (SPY:AMEX), US S&P 500 Index USD5 CFD]

The CSI 300 is in a consolidation phase. Fri’s release of China Dec CPI inflation data surprised on the upside and cooled risk sentiment. Upward momentum is tapering off with key technical resistance ahead.

The HSCEI needs to clear strong resistance at 12,000 level to head higher. Meanwhile, the HSI -riding on the tailcoat of China's rebound- has paused and is consolidating for now.
 
[China-Hong Kong :
ETF: ChinaAMC CSI300 ETF (83188 HK), H Share Index ETF (2828 HK), Tracker Fund of Hong Kong (2800 HK)
CFD: H Shares Index HKD5 CFD (CEI :H-shares), FTSE China A50 Index USD1 CFD, Hong Kong 40 Index HKD5 CFD]

Macro Data:

In the US, the trade deficit ballooned from US$42.1 bn in Oct to US$48.7 bn in Nov, owing to a 3.8% m-m surge in imports - larger consumer goods (incld automobiles).

In UK, Industrial production rose by 0.3% m-m in Nov, trailing the market expected 0.8% m-m gain, after the 0.8% m-m fall in Oct. On y-y basis, industrial production fell by 2.4% y-y, compared to the 3.0% y-y drop in Oct. The nation’s manufacturing production unexpectedly fell by 0.3% m-m, while the market was predicting a 0.5% m-m gain, after the 1.3% m-m drop in Oct. The nation’s economic recovery is still struggling to gain traction as the crisis in Europe continues and the government drives through the biggest fiscal squeeze since World War II.

In China, inflation reported 2.5% in Dec, exceeding the market expected 2.3% pace, after 2.0% y-y in Nov. PPI dropped by 1.9% y-y, after the 2.2% y-y drop in Nov. The hiking inflation results from rising vegetable prices due to the nation’s coldest winter in 28 years. However we do not expect any tightening policies on the monetary front as the nation’s reacceleration is still weak.

In South Korea, Bank of Korea held benchmark rate unchanged for a third straight month, at 2.75%, amid promises from incoming president Park Geun Hye to increase efforts to support economic growth and create jobs. BOK also reduced its forecast for 2013 growth to 2.8 percent from 3.2 percent, highlighting obstacles to a rebound that include the won’s 27 percent rise against the Japanese yen in the last year, and targeted a narrower range for inflation between 2.5% to 3.5%.

Regional Market Focus

Singapore
 

• The benchmark STI was little changed at 3,216.50 (-0.30%). 5.2bn shares were traded with value worth S$1.9bn.
• Following new measures to curb the property market in Singapore, property stocks are set to be the trading focus for today. Despite the cooling measures announced, our property analyst maintains his view that residential property prices are unlikely to correct significantly amid ample liquidity and low interest rates environment. We expect residential property prices to correct by approximately 5% in 2013.
• 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 Thai stock market endured extreme volatility last Fri but it remained in a consolidation mode. The composite SET index at one time tumbled as much as 13 points during the session but it later managed to reverse course and turn positive at the beginning of the afternoon trade led by buying in energy, petrochemical and housing stocks.  
• We expect another session of wild swings in the Thai bourse today but the composite SET index may remain stuck in range in the absence of fresh trading cues to set a market direction. The Thai baht held relatively steady. Foreign investors sold a small amount of Thai shares last Fri. Overall we expect the SET index to trade in a range of 1405-1418 today. In our view, the market’s focus will this week turn to earnings reports from both Thai and US banks and Chinese GDP data due out on Fri.
• The short-term strategy is to be selective in stocks.
• Resistance on the main index is pegged at 1418-1425 and support at 1405-1398 today.

Indonesia
 

• Composite index of Indonesian stocks finished with modest decline on Friday (11/01), as most equity markets in Asia traded lower after the release of higher-than-expected inflation in China. The Jakarta Composite Index (JCI) shed 11.453 points, or 0.27%, to close at 4,305.912. The decline included seven of the 9 major industry groups, with commodity sectors fared worst. Index of mining sector lost 1.19%, agriculture sector fell 13.01%, and basic industry contracted 0.67%. LQ45, the index measuring Indonesia’s blue-chip shares, slipped 2.027 points, or 0.28%, to 731.879. Asia stocks mostly declined Friday (11/01) after a sizeable increase in Chinese inflation. China’s consumer prices rose by 2.5% in December, representing a seven-month high for the data series. The rise in China’s consumer prices at a quicker pace than expected in December dampened investor enthusiasm in Asia.  More than 110 shares declined, 111 shares advanced, and 246 shares stayed unchanged Friday on the Indonesia Stock Exchange, where 3.299 billion shares worth IDR 3.934 trillion traded on the regular board. Foreign market participants posted net sales of IDR 259.92 billion.
• The Jakarta composite index will likely start the week with flat tone today, following weak leads from the US markets last Friday. We are looking at 4,276 and 4,357 as the composite index’s support and resistance.

Sri Lanka
 

• The Colombo bourse concluded the 2nd week of Year 2013 on a flat note; this was mainly a result of the sluggish participation of the investors which was visible on most of trading days of the week. The All Share Price Index lost tiny 1.22 points (marginal 0.02% decrease compared to the prior week) to close the week at 5,746.49. However, the S&P SL20 Index increased by 12.16 points (0.39%) and closed the week at 3,133.87 in green territory. The total turnover for the week stood at LKR 3.8Bn; this was a marginal increase of 2.05% in comparison to the previous week. Meanwhile, the turnover for the day stood at LKR 454Mn. A total of 22 crossings totalling up to 1.7Bn were recorded during the week, these crossings made a 45% contribution to the week’s turnover. The total traded volume for the week was 102Mn shares, a decrease of 27.54% against the previous week. The total market capitalization for the day stood at LKR 2.21Tn during the day. The Market PER(X) and PBV(X) were 16.26 and 2.11 respectively at the weekly closure. Foreign sales amounting to LKR 1.9Bn outpaced the foreign purchases of LKR 1.7Bn during the week to result a net foreign outflow of LKR 115.9Mn.

Australia
 

• S&P/ASX 200 decreased by 0.29% or 13.47 points to close at 4,709.49.

Hong Kong
 

• Local stocks swung between gain and loss due to China’s CPI of December was higher than market’s expectation. The HSI and HSCEI dropped 90 point and 88 points to 23264 and 11842 respectively. Market volume was 83.243 billion, dropped 10.3% dod.
• Due to the poor CPI result, investors are worried the CPI data may result in macro control from central government to tame inflation. “A” shares dropped about 2% and Hong Kong market also followed the trend. We believe the “A” share will consolidate in this week, 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

Hyflux Ltd announced that the water purchase agreement (WPA) to deliver desalinated water to the Dahej Special Economic Zone (Dahej SEZ) in Gujarat, India has been finalised and signed with Dahej SEZ Limited (DSL). The WPA between DSL and Swarnim DahejSpring Desalination Pvt Ltd (DahejSpring) will become effective once financial close for the desalination project is achieved. DahejSpring is the special purpose company formed by consortium members Hitachi Ltd and Hyflux Utility (India) Pvt Ltd, a wholly-owned subsidiary of Hyflux, for the development of the seawater desalination project in the Dahej SEZ. The WPA will be for a term of 30 years, including an estimated three-year construction period. DSL is committed to purchase 100% of the water on a take or pay basis. (Closing S$0.064, +0%)

ISDN Holdings Limited announced that the Company has, through its wholly-owned subsidiary, Servo Dynamics Pte. Ltd. set up a Joint Venture Company with Mr Kelly Kao Thiam Leong known as Servo Dynamics Engineering Co. Ltd in Vietnam, with an issued and paid-up share capital of USD300,000/-. Pursuant to the incorporation, Servo Dynamics Singapore will hold a 51% stake in Servo Dynamics Vietnam. The remaining 49% stake in Servo Dynamics Vietnam will be held by Mr Kelly Kao Thiam
Leong. Servo Dynamics Vietnam will be in engaged in the business of importing, exporting, distributing, servicing and repairing of motion control and industrial computing products, electric motor and accessories, and will also provide integrated solutions and mechanical and engineering services. The above investment will be funded by internal resources and is not expected to have a material impact on the Company’s earnings per share and net tangible assets per share for the current financial year ending 31 December 2013. (Closing S$0.064, +0%)

Source: PhillipCapital Research - 14 Jan 2013