Morning Market Commentary

- STI: -0.33% to 3196.1
- MSCI SE Asia: +0.16% to 882.6
- Hang Seng: -0.14% to 23381.5
- MSCI APxJ: -0.26% to 477.0
- Euro Stoxx 50: -0.50% to 2701.6
- S&P500: +0.11% to 1472.3

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Could US lawmakers be crying wolf? Well, markets seem to think so. Major equity indices worldwide are hovering near their recent cyclical peaks and the VIX index remained relatively low, albeit gradually rising. Markets are getting accustomed to the displays of political brinkmanship followed by an 11th-hour deal in the end. But Treasuries are already hinting signs of jitteriness over the unresolved issues on the US fiscal front, with US 10Yr Treasuries continuing to slip 1 bp to 1.84% - almost a 2-week low.

We caution that while the global outlook has stabilised, it remains in a fragile equilibrium. Short-term volatility in Feb 2013 is possible. Recall the fiscal compromise that US Congress reached at the turn of this year was not a grand bargain. Unresolved issues will return to haunt the US in late Feb 2013: (i) delayed spending cuts of US$110bn (as part of US$1.2tr spending cuts over 10yrs, i.e. sequester”) and (ii) the need to raise its US$16 trn debt ceiling (which Obama does not want this aspect to be part of any broader deal of spending cuts). Furthermore, US is also confronted with longer-term fiscal sustainability issues, though that is certainly not at the forefront of markets' minds now.

Downside risks are also lurking at the backdrop. Specifically, (i) a sharper-than-expected fiscal drag in the US and EZ, (ii) faltering growth in China and (iii) premature exit by the Fed from LSAPs might weigh on growth and consequently risk sentiment.

Still, we are constructive on the 2013 investment outlook, with macro fundamentals turning positive in US, China, less negative in EZ, and remain resilient in ASEAN. Furthermore, synchronised G4 monetary easing will provide downside support for risk assets (such as equities).

• For equities, market might pull back amid lingering uncertainties over unresolved issues on the US and EZ fiscal front. Nonetheless, such pull back in prices serve as an attractive opportunity to accumulate our OWs on CN,HK (on compelling valuations),  PH, SG, TH equities. But our equity preference has shifted from ASEAN to CN-HK. SG is preferred to TH on valuations. Our SG Equity Strategist’s top picks are SIAEC, Capitaland & Pan United.

• Commodities: Upgrade to MW in view of an improving global economy as well as receding tail risks. However, at this juncture, we will like to express our views of an improving global economy (barring downside risks) on the back of global liquidity glut with OWs on Asia equities rather than commodities per se on a relative return basis.

• Fixed Income: High Yield debt (OW) and EM-Asia Local Currency debt (OW) should continue to do well, but returns could be significantly lower given that portfolios are likely to rotate more into equities given improvements in the investment climate.

Please refer to the table summary of suggested ETFs to trade the macro outlook and the various asset classes in our GMAS report dtd 4 Jan 2013.
 

Macro Data:

In the US, retail sales gained 0.5% m-m in Dec, following a 0.4% increase in the preceding month. This positive performance in retail sales is likely to translate to real consumption gains for 4q12.

In EZ, exports rose 0.8% m-m in Nov, the first gain in three months, owing to an improvement in external demand.

In Singapore, retail sales declined 0.8% m-m sa in Nov, reversing from a 0.5% growth in the preceding month. Ex motor vehicles, retail sales rose 0.1%.

In Japan, preliminary reading for machine tool orders fell significantly by 27.5% y-y in December, after the 21.3% y-y drop in Nov. Domestic orders fell by 26.5% y-y, after the 20.9% y-y fall in Nov, while foreign orders fell by 27.9% y-y, after the 21.5% y-y drop in Nov. On m-m basis, the total orders fell by 4.6% m-m, a third consecutive fall, after the 6.5% m-m fall in Nov. Prime Minister Shinzo Abe announced 10.3 trillion yen ($116 billion) in additional stimulus measures on Jan. 11 and is pressuring the Bank of Japan to double its inflation target to 2 percent after the third recession in five years. The weaker yen induced by the expected further loosening would likely bolster nation’s export business.
 

In Japan, preliminary reading for machine tool orders fell significantly by 27.5% y-y in December, after the 21.3% y-y drop in Nov. Domestic orders fell by 26.5% y-y, after the 20.9% y-y fall in Nov, while foreign orders fell by 27.9% y-y, after the 21.5% y-y drop in Nov. On m-m basis, the total orders fell by 4.6% m-m, a third consecutive fall, after the 6.5% m-m fall in Nov. Prime Minister Shinzo Abe announced 10.3 trillion yen ($116 billion) in additional stimulus measures on Jan. 11 and is pressuring the Bank of Japan to double its inflation target to 2 percent after the third recession in five years. The weaker yen induced by the expected further loosening would likely bolster nation’s export business.

Regional Market Focus

Singapore
 

• The benchmark STI was marginally lower at 3,196.07 (-0.33%). 4.0bn shares were traded with value worth S$1.8bn.
• Yangzijiang Shipbuilding announced a proposal to issue 330mn warrants, at an issue price of RMB0.3072 (S$0.0605), that would carry the right to subscribe for its shares at RMB7.617 (S$1.50). The shares would enlarge the existing share base by 8.6% with strike price at a 36% premium to the last traded price.   
• 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
 

• Volatility remained elevated on Tue. The composite SET index rallied to test 1430 before short-term profit taking dragged it lower in the afternoon session. The Thai baht sharply appreciated to near 30 per US dollar before the unit reversed course.   
• Wild swings are likely to continue in the Thai stock market today, awaiting a number of major developments ahead especially US negotiations on budget cuts and debt limits. In the near term, the market may dance to earnings tune as a number of listed companies both in the US and Thailand are due to release earnings results but we believe the SET index will remain range-bound. The Thai baht appreciated rapidly and broke through 30 per US dollar. The currency’s strength should continue to help limit the market’s downside, in our view. Under this circumstance, we think sector rotation or selective plays may be more active today.
• The short-term strategy is to be selective in stocks.
• Resistance on the main index is seen at 1430-1437 and support at 1417-1410 today.

Indonesia
 

• Benchmark index of Indonesian stocks moderately climbed on Tuesday (15/01), amid generally lower closes on Asian markets, as concerns about the US debt ceiling impasse led investors to take profit after recent strong runs. The Jakarta Composite Index (JCI) finished with 18.326 points, or 0.42% gain, to close at 4,400.824. Miscellaneous industry sector led gains that included six of the 9 major industry groups with 1.15%-advance, followed by infrastructure sector with 1.05%-gain, and financial with 0.74%-rise. LQ45 – the index trailing Indonesia’s blue-chip stocks – rose 5.046 points, or 0.67%, to 754.492. More than 110 shares advanced, 135 shares declined, and 219 shares remained unchanged Tuesday on the Indonesia Stock Exchange, where 3.116 billion shares worth IDR 3.625 trillion traded on the regular board. Foreign investors posted net purchases worth IDR 347.44 billion
• We expect the Jakarta Composite Index to continue advancing today, however with limited gains, driven by positive sentiments after modest gains in US indices overnight. The composite index is likely to trade with support and resistance at 4,364 and 4,419 respectively.

Sri Lanka
 

• The Colombo bourse concluded the first trading day of the week entering in to positive territory. ASPI gained marginal 3.75 points to close at 5,750.24 points (0.07%) whilst, S&P SL20 Price Index ended at 3,134.32 points (0.01%), also tiny accumulating 0.45 points. The market capitalization stood at LKR 2.21Tn as at the market closure.
• The turnover stood at LKR 728Mn, which is a 60.22% increase compared to the previous trading day.  Diversified Holdings (LKR 199Mn) sectors were highlighted as the best performers under the sectorial summary.  The total traded volume for the day was 20Mn shares; which was a 38.56% increase against the previous trading day.  A net foreign inflow of LKR 190Mn was recorded during the day.

Australia
 

• The Australian stock market on Tuesday closed marginally lower after investors decided to reap their profits later in the day. At the close on Tuesday, the benchmark S&P/ASX200 index was down 3.1 points, or 0.07 per cent to 4,716.6.
• Today, the Australian market looks set to open lower after falls on Wall Street and most European markets following Germany's disappointing economic growth figures. The SFE Futures 200 is pointing downwards 6 points or 0.12 per cent to 4,686.
• On the local economic news front for Wednesday, the Westpac/Melbourne Institute Survey of Consumer Sentiment, the Australian Bureau of Statistics (ABS) Lending finance for November and the ABS new motor vehicle sales for December are all due to be released.
• No major equities news is expected.

Hong Kong
 

• Local stocks swung between gain and loss The HSI and HSCEI dropped 31 point and rose 3 points to 23381 and 12006respectively. Market volume was 75.089 billion, dropped 3.2% dod.
• The HSI gained a support from the 10 SMA (23311), due to the sales of iphone5 is worsened than market expected, there is a rumor apple is cutting the orders from related supplier, led the price of related stock declined.
• As a major supplier, AAC (2018) dropped 2.8% and closed at 27.9 HKD.
• Technically, the HSI is expected to gain a support from 23000 level, major resistance will be 23500 level. Investors are suggested to stand on sideline and wait for a clear trading signal. Investors can also buy in the A share related ETF after the consolidation in China market.

Morning Note

Company Highlights

Changtian Plastic & Chemical Limited refers to the circular of the Company dated 30 March 2012 in relation to, inter alia, the diversification of the Group’s core business to include the business relating to the manufacture and sale of Nylon-6 chips in the PRCBased on further detailed assessment and feasibility study conducted by management of the Company, the Company is likely to increase the total capital commitment for the Nylon-6 Chip Development from up to RMB622 million (as stated in the Circular) to up to RMB1,122 million (equivalent to approximately S$224.8 million), so as to double the annual production capacity of the Nylon-6 Chip Plant from approximately 55,000 mt, as originally planned, to approximately 110,000 mt. (Closing price: S$0.061, +0.0%)

Ezion Holdings Limited announce that the Group has been awarded a letter of intent from a South East Asian Statelinked corporation for the charter of one unit of Liftboat over a 4 year period with an approximate contract value of up to US$ 116.8 million. The Liftboat is expected to be deployed in the waters of South East Asia upon its completion around the end of 2014. (Closing price: S$1.82, -3.19%)

Heatec Jietong Holdings Ltd announced that the Group is expected to report an overall net loss for the financial year ended 31 December 2012. Due to (a) the deepening slowdown in the Marine Industry, leading to a decrease in the revenue contributed by the Group’s Piping segment and Heat Exchanger segment, while the Group’s effort in pursuing growth in the Offshore, Oil and Gas sector has yet to contribute to the Group’s profitability; and (b) an impairment loss following a revaluation of the Envirobotic machines recorded in Heatec Chariot Envirobotics Pte Ltd, a subsidiary of the Group. (Closing price: S$0.085, +0.0%)

Mun Siong Engineering Limited has been awarded a term maintenance contract from a new customer, Jurong Aromatics Corporation Pte Ltd. JAC is a privately held business with interest in the manufacturing and sales of aromatics and oil products. They are building a green field world-scale aromatics complex on Jurong Island in Singapore. The Company is a provider for the provision of specialised maintenance services to JAC. The contract period is for 32 months with an option for further extension. The Contract will add to the Company’s stream of recurrent income. With this new term maintenance contract that the Company has secured with JAC, it has brought the total number of recurring term maintenance contracts for the Group to eight. The Company is unable to disclose the value of the Contract for confidentiality and competitive reasons. (Closing price: S$0.086, +1.1765%)

Sakae Holdings Limited announced that the Company has entered into a legally binding memorandum of understanding dated 15 January 2013 with (i) NEC Capital Solutions Limited: (ii) MP Holdings Co. Ltd; and (iii) Mr. Nobuo Yamanoi (collectively, the “Parties”) in relation to, inter alia:(a) the proposed subscription by the Company for 210 ordinary shares, which will represent 51.22% of the ordinary issued share capital of MP Holdings; and (b) the proposed business collaboration amongst the Parties to expand the business and operations of Marinepolis Co., Ltd. in Japan and Marinepolis U.S.A. Inc. in the United States of America. (Closing price: S$0.305, -3.1746%)

Source: PhillipCapital Research - 16 Jan 2013