Morning Market Commentary

- STI: -0.31% to 3206.6
- MSCI SE Asia: +0.30% to 881.3
- Hang Seng: +0.64% to 23413.3
- MSCI APxJ: +0.49% to 478.2
- Euro Stoxx 50: -0.10% to 2715.2
- S&P500: -0.09% to 1470.7

MARKET OUTLOOK:
By Joshua Tan, Hd of Research

Government intervention has caused some positive whip-saw to Asian markets. Specifically China A-shares and H-shares yesterday reversed what was a short term downtrend/consolidation to a huge positive candle reversal on hints from officials that QFII could be expanded 10 times! We have been Overweight China-HK stocks since Oct12 and still maintain this call despite the +20% run-up since then. Hd of Research China likes 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). Investors can also long the indices CSI300 with 83188.HK and the HSCEI with 2828.HK.

The STI on the other hand went the opposite way to most other Asian indices which rallied on China, as the govt cooling measures on property stocks hammered the sector. The STI (ETF: ES3.SGX) is nonetheless still an Overweight for us this year and we expect buying on weakness to kick in at some point. SG Equity Strategist favours SIAEC, Capitaland (on China exposure), and Pan United. We have buys on NOL, SIA, KeppelCorp as transport and industrials should benefit from Asia’s cyclical upturn.

Although we are positive on stocks as the year is shaping out, before 1q13 is out we are moving into a time of debate over the US sequester and debt ceiling, which if you recall, caused a 19% slump to equities in 2011. So despite yesterday’s positive move in Asia, the US remains tentative, unable to clear the 1470 convincingly. Asian markets therefore could still use the upcoming US fiscal debates as an excuse to pause after what has been a strong run-up since November.
 

Macro Data:

In the Eurozone, industrial production continued to contract 0.3% m-m in Nov, but the pace of decline is getting less negative. Nonetheless, with industrial output still sluggish, the EZ is likely to remain mired in a recession.

In Australia, inflation reported 2.4% in December, slightly slower than the 2.5% pace in Nov. A separate report shows that the number of home loans fell by 0.5% m-m in Nov, after it advanced 0.1% m-m in Oct. The value of total loans fell by 0.8% m-m in Nov, after it advanced 1.9% m-m in Oct. The data underscore the central bank’s decision to lower the overnight cash rate target a quarter percentage point to 3 percent last month, the sixth reduction since Nov. 1, 2011, to spur hiring and revive the housing market. Policy makers are aiming to rebalance Australia’s two-speed economy, where mining regions in the north and west thrive while manufacturers, retailers and builders in the south and east struggle.

In India, wholesale inflation eased from 7.24% y-y in Nov to 7.18% in Dec. We opine that in view of some progress made by the government in addressing some of the structural growth constraints as well as easing inflationary pressures, the RBI might consider reviewing its monetary stance and consider cutting rates (at the upcoming 29 Jan 2013 monetary review) to stimulate growth.
 

Regional Market Focus

Singapore

• The benchmark STI was marginally lower at 3,206.59 (-0.31%). 3.6bn shares were traded with value worth S$2.0bn.
• Property stocks led the market decline with City Development (-7.5%) being the largest loser in the STI. We reiterate our positive view on Capitaland as the diversity of its business across the key markets of China, Singapore & Australia shields them from concentration to policy risks in Singapore.
• For investors looking to ride the risk-on rally and gain exposure to cyclical counters, our preferred stocks in the industrials and transportation space are NOL, SIA and Keppel Corp.
• 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

• Thai stocks extended gains and stayed in the green throughout the session on Mon. Energy, petrochemical, property and auto names led the market’s advance.
• The composite SET index surprisingly performed better than we thought yesterday on return of foreign buying in both equities and derivatives markets. The Thai baht rapidly appreciated to 30.15 per US dollar on Tue (0745 hrs Thailand time). On this basis, we believe the market’s bullish sentiment will likely continue today but volatility is expected to be a persistent factor in the market along the way in the face of major uncertainties ahead especially US budget and debt ceiling negotiations. In the latest development, US President Barack Obama warned Congress on Mon that a refusal to raise the US debt ceiling next month could lead the US into a debt default, which would prevent the government from being able to provide Social Security benefits to some seniors and may trigger economic chaos. Heading into corporate earnings seasons in the US and Thailand, the market may also dance to earnings tune amid earnings surprises and disappointments. Today there is potential for the SET index to test the previous high of 1430, a crossroads for the market. In our view, the outlook is not worrisome in the near term but US negotiations to raise the debt limit and cut federal spending remain a worry in the medium term as the clock ticks in.
• The short-term strategy is to be selective in stocks.
• Today we peg resistance for the composite SET index at 1430-1437 and support at 1420-1416.

Indonesia

• The Jakarta Composite Index (JCI) rebounded sharply on Monday (14/01), trailing positive moves in Asia that came after higher closes on US markets. The JCI surged 76.586 points, or 1.78%, to close at 4,382.498. Construction and real estate sector led gains that included all 9 major industry groups with 2.48%-advance, financial sector with 2.41%-climb, and miscellaneous industry with 2.31%-gain. Most Indonesia’s blue-chip stocks also rose on Monday, with the LQ45 index that trails them added 17.567 points, or 2.40%, to 749.446. More than 150 shares advanced, 95 shares declined, and 219 shares stayed unchanged Monday on the Indonesia Stock Exchange, where 4.666 billion shares worth IDR 4.471 trillion traded on the regular board. Foreign investors posted net purchases worth IDR 461.02 billion in total.
• The JCI looked set for another climb today, however with limited gains after a sharp advance yesterday, with positive momentum from Asia as weaker Yen buoyed equity market in Japan. We expect the Jakarta composite index to trade within 4,291 – 4,428 range today.

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. (11/01/13)

Australia

• The Australian share market on Monday closed higher after a day of consolidation with gains across most of the board, despite light trading. On the close on Monday, the benchmark S&P/ASX200 index was up 10.2 points or 0.22 per cent to 4,719.7.
• Today, the local market looks set to open virtually unchanged ahead of a speech by US Federal Reserve chairman Ben Bernanke. The SFE Futures 200 is pointing upwards 1 point or 0.02 per cent to 4,690.
• No major economic news is expected on Tuesday.

Hong Kong

• HSI increased 149.19 points or 0.64% to 23,413.26 on yesterday session.

Morning Note

Company Highlights

Ipco International Limited announced that, further to the announcement made on 24 July 2012 relating to a conditional agreement dated 23 July 2012 to acquire the balance 30% shareholding interest in Asia Plan Ltd from Brentwood Overseas Ltd, the Vendor has elected to terminate the Agreement. The Company has agreed to accept the termination, and neither the Vendor nor the Company will have any further claim against the other in respect of the Agreement. Due to the recent revival in the US housing market, the Vendor has decided to continue holding on to his stake in Asia Plan. The termination of the Agreement will not have any material effect on the net tangible assets or earnings per share of the Company for the current financial year. (Closing S$0.023, -4.1667%)

Renewable Energy Asia Group has obtained approval from the Gansu Development and Reform Commission (GDRC) for the construction of a 20-megawatt (“MW”) grid-connected solar farm, in Dongdongtan, Jiuquan Municipal, Gansu Province, China. The Dongdongtan project is the latest solar farm project that REA Group will undertake in Jiuquan municipal, under an agreement with the Jiuquan municipal government dated September 2010 to develop renewable energy resources there. It is also REA Group’s second solar farm project in Jiuquan’s Photovoltaic Industrial District in Dongdongtan. The first such project was a 9MW solar farm completed last year. These solar projects form part of the Jiuquan government’s blueprint for photovoltaic power generation facilities aggregating 100MW in the municipal. (Closing S$0.047, -6%)

Global Logistic Properties Limited announced that it has pre-leased approximately 77,000 square metres  (829,000 square feet (“sq ft”)) to Deppon Logistics, one of China’s leading third-party logistics providers. With the inclusion of these leases, Deppon Logistics is now GLP’s second largest customer in China at 2.8% of total leased area. (Closing S$2.7, -1.46%)

Sembcorp Industries (Sembcorp) announced that it now owns 100% of the shareholding in Sembcorp Utilities (Netherlands) N.V., formerly known as Cascal N.V., following the completion of squeeze-out proceedings under the Dutch Civil Code in the Netherlands. The remaining 465,870 shares, representing 1.5% of the total ordinary issued shares, have been transferred to its wholly-owned subsidiary, Sembcorp Utilities, at a consideration of US$10.13 per share, a price determined by the Dutch Enterprise Chamber. The acquisition is funded from internal resources and is not expected to have a material impact on the earnings per share and net asset value per share of Sembcorp Group for the financial year ending December 31, 2013. (Closing S$5.38, +0.186%)

Source: PhillipCapital Research - 15 Jan 2013