Morning Market Commentary

- STI: +0.35% to 3231.2
- MSCI SE Asia: +0.21% to 879.9
- HSCEI: -0.25% to 12166.7
- HSI: -0.10% to 23635
- MSCI APxJ: -0.15% to 479.4
- Euro Stoxx 50: -0.31% to 2708.3
- S&P500: +0.15% to 1494.8

MARKET OUTLOOK:
By Joshua Tan, Hd of Research

Our expectation of a positive week continues to pan out in the S&P500, CSI300, HSCEI, Hang Seng and STI. Asia ex-JP as a whole has lifted and we also note that the SET (Thai) continues to trend higher. Regular readers will note that we have been expecting since Friday that the markets in general will be induced to go higher after the S&P 500 and HSCEI cleared crucial resistance lines last Thu, Fri.

This week the surprise has been the KLCI, yesterday we wrote that if we advance off the long tail rejection off the 50wma (and the 200dma for that matter) we are likely to advance further. We had that yesterday and so its likely the bounce higher is building legs. Again, PhillipCFD traders keep your stops tight in case it fails. The KLCI’s past year volatility has been low, but this is now the SECOND test of the 50wma/200dma in THREE months. That’s not good for what has been a low volatility uptrend. Political risk is mounting as the market perceives a weak mandate for BN this election. Our asset strategy has Malaysia on Marketweight due to political risk.

China, HK, and Singapore stocks remain OWs. Our strategist’s stocks in focus are:
- Hd of China Research: China Merchants Bank (3968 HK), Central China Real Estate (832 HK)
- Hd of HK Research: Dah Sing Financial (440 HK) and HSBC (5 HK)
- SG Equity Strategist: SIA for a turnaround play. Pan United, SATS, SGX for profit growth. SIAEC for an excellent long term investment. Capitaland for China exposure.

As usual we finish off with our market outlook for the year: we continue to believe that this is a year for stocks and maintain OW on CN, HK, SG, TH and PH markets. Investors looking to invest in the first 4 markets should check out our Country Strategy reports (see below), else invest/trade them thru ETFs/CFDs listed in the Asset Strategy reports (see below).
 

Macro Data:

In US, home prices rose by 5.6% y-y in Nov. On m-m basis, the house prices rose by 0.6% m-m in Nov, slightly trailing the 0.7% m-m forecast by the market. Home prices have been climbing as growing employment and low borrowing cost fuel demand. Sales of existing home fell 1% m-m in Dec, restrained by the tight supply of available properties. The Republican-led house of representatives voted today on legislation suspending the government’s $16.4 trillion debt limit until May 19. At that point, the U.S. borrowing authority would be automatically increased to accommodate the amount the Treasury borrows. The strategy allows Republicans to focus on other deadlines to seek deeper spending cuts from President Obama and Congressional Democrats while avoiding blame for a possible default. Lawmakers have until March 1 before automatic spending reductions will start and until the end of that month to pass a bill to fund the government.

In UK, unemployment claims unexpectedly declined in Dec by 12100 from Nov to 1.56 million, marking the lowest level in 1 year and a half. And ILO unemployment rate declined to 7.7% from 7.8% in Nov, reflecting a resilient labor market in the face of a weak economic recovery. The BOE policymakers voted 8-1 to keep their bond-purchase plan unchanged at 375 bn pounds according to minutes of Jan 10 decision. Though inflation is staying high compared to the BOE’s target, the central bank governor Mervyn King has indicated the possibility of further stimulus though asset purchases and interest rate reduction if needed.

In Australia, CPI grew by 0.2% q-q in 4q12, trailing the market expected 0.4% q-q pace, after the 1.4% q-q gain in 3q12. Over the year, CPI rose by 2.2% y-y, compared to the 2.0% y-y pace in 3q12. The central bank is currently holding the benchmark interest rate at 3.0%. The slower than expected inflation has grant RBA further scope for monetary loosening.

In Taiwan, industrial production rose by 2.39% y-y in Dec, trailing the market expected 6.8% y-y gain, after a 5.85% y-y gain in Nov. Commercial sales rose by 1.74% y-y, beating the market expected 1.43% y-y gain, after the 1.26% y-y gain in Nov. The export centric economy has benefited from China’s re-acceleration and improved retailed sales in US, though the recovery would be a mild one.

In Singapore, inflation hiked to 4.3% y-y in Dec from the 3.6% y-y pace in Nov on higher contribution from the costs of accommodation and cars, far exceeding the market expected 3.8%. On m-m basis, CPI rose by 0.7% m-m, after the 0.1% m-m gain in Nov. We expect MAS to continue maintaining a strong SGD to curb inflation.

In Malaysia, inflation eased to 1.2% y-y in Dec from 1.3% y-y in Nov, while the market was predicting a hike to 1.4% y-y. The 1.2% y-y pace marks the slowest pace in almost 3 years. The central bank has kept the benchmark interest rates unchanged at 3% for nine straight months as the healthy expanding economy and slow inflation reduced the need to adjust monetary policy. Bank Negara Malaysia said in Nov that price gains are expected to remain modest in 2013 amid excess capacity in the economy.

In Thailand, exports rose by 13.45% y-y in Dec on demand for electronics and auto parts, after the 26.86% y-y gain achieved in Nov. The reading trails the market expected 21.5% y-y gain. The Bank of Thailand Governor Prasarn Trairatvorakul said earlier that risks to growth have declined amid a firmer global recovery and that shipments show signs of a broad-based recovery. Still, Finance Minister Kittiratt Na-Ranong said last week the exchange rate is "not at a good level" and that exporters will face difficulties should the baht strengthen further.
 

Regional Market Focus

Singapore

• The benchmark STI was little changed at 3,231.23 (+0.35%). 3.9bn shares were traded with value worth S$1.6bn.
• In our latest report, our Global Macro team continues to overweight Equities and the Singapore Market on a relative basis. 
• 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 still reigned supreme in the Thai stock market on Wed. Traders increasingly turned to mid-to-large cap stocks and dump small-caps after the Stock Exchange of Thailand kept a close watch on speculative stocks. The composite SET index briefly broke below 1420 before it reversed course to finish the session in the positive territory at 1493.
• Thai stocks today are likely to take leads from overnight gains on Wall Street after stronger-than-expected results from IBM and Google and the US House of Representatives passage of a Republican-led plan to extend the US borrowing authority until mid-May but a sharp slide in global oil prices may weigh on sentiment. Even though foreign buying spree continued in the Thai stock market to the tune of nearly Bt1.5bn yesterday, foreign investors however increased their net short position in futures by 1,064 contracts. The Thai baht extended its slide to 29.80 per US dollar this morning (0800 hrs Thailand time) after flying baht prompted PM Yingluck Shinawatra to meet Ministry of Finance and the Bank of Thailand. Under this circumstance, we expect the SET index to swing back and forth between positive and negative territories in the same range of between 1430 and 1445 today. 
• The short-term strategy is to be selective in stocks but investors should be more cautious in trading as sporadic bouts of profit taking may kick in along the way though the market would continue to trade in an uptrend. Set a cut loss at 1410.
• Resistance on the main index is seen at 1445-1450 and support at 1430-1422 today.

Indonesia

• The Indonesia Stock Market is closed for a holiday.

Sri Lanka

• Colombo Bourse closed at 15 week high. The Colombo bourse continued with its yesterday’s positive momentum and concluded the trading day within the green territory for the 2nd consecutive day. The Benchmark ASPI closed at 5,883.66 gaining 12.73 points or 0.22% while recording its 15 weeks high after 03rd October 2012. S&P SL20 index also jumped up for the second consecutive day by 7.23 points (0.23%) to conclude at 3,191.80. The market capitalization as at the day’s closure stood at LKR 2.26Tn with a year to date gain of 4.27%.
• The day’s turnover stood at LKR 1.27Bn; this was a 39.22% reduction compared to the crossing abundant previous trading day. Banking, Finance & Insurance (LKR 900.6Mn) and Investment Trusts (LKR 112.6Mn) stood out as the best performers under the sectorial summary. The total traded volume for the day totalled up to 37.86Mn shares; this was an 80.77% decrease against the previous trading day. Price gainers outnumbered the price losers at a ratio of 98:81. Foreigners appeared to be bearish for the fourth consecutive day, recording a net foreign outflow of LKR 239.1Mn, extending the year to date net foreign outflow to LKR 354Mn. The USD Closed the day at a quoted price of LKR 128.30/-.

Australia

• On Wednesday, the Australian share market closed higher after BHP Billiton's (BHP.ASX) production report exceeded expectations and weak inflation figures drove up high-yielding stocks. At the close, the benchmark S&P/ASX200 index was up 8.7 points or 0.18 per cent to 4,787.8.
• Today, the local market looks set to open lower following Apple Inc’s (AAPL:US) after market quarterly result that missed Wall Street’s expectation. The SFE Futures 200 is pointing lower 7 points or 0.14 per cent to 4,746.
• On the local economic news front for Thursday, the HIA-RP Data Residential Land Report for the September 2012 quarter is due to be released.
• In equities news, Fortescue Metals Group (FMG.ASX) is expected to release its second quarter production report, OZ Minerals (OZL.ASX) its December quarter report and PanAust (PNA.ASX) its fourth quarter report.

Hong Kong

• Local stocks swung between gain and loss. The HSI and HSCEI dropped 23 point and 30 points to 23635 and 12166 respectively. Market volume was 80.893 billion, rose 11.6% dod.
• Investors lost trading direction, as there is no news from Mainland China,we believe the market is going to consolidate, as some of the technical indicators is showing the HSI is overbuying, investors are suggested to stand on sideline and wait for a clear trading signal.
• Technically, the HSI is expected to gain a support from 23300 level, major resistance will be 23800 level.

Morning Note

Company Highlights

AusGroup Limited, subsidiary AGC Industries Pty Ltd, announced it has been awarded additional fabrication work to the value of approximately AUD20 million on the Chevron-operated Gorgon Project, taking the total contract value to more than AUD70 million.  AGC’s scope of work involves high specification fabrication of stainless and carbon steel pipework, non-destructive testing, post weld heat treatment, blasting and LNG specification painting related to the LNG modules for trains 1-3 on the Gorgon Project. Fabrication will be undertaken at AGC’s manufacturing and fabrication facilities in Kwinana and Henderson, Western Australia. (Closing price: S$0.635, -0.781%)

XinRen Aluminum Holdings Limited informed the shareholders of the Company and the investors that, because of the uncertain global economic conditions – which also affected the Group’s previously announced financial results for the first quarter, six months and nine months of the financial year ended 31 December 2012 (“FY2012”) – as well as the effects of (i) an overall decrease in the average selling price of aluminum products; (ii) an increase in the cost of electricity; and (iii) a lower trading margin to total sales, the Group expects to record lower earnings for FY2012 as compared with the previous corresponding year, FY2011. (Closing price: S$0.325, -1.515%)

Boustead Singapore Limited announced that its wholly-owned subsidiary, Boustead Projects Pte Ltd (“Boustead Projects”) has been awarded a building contract (the “Project”) by BASF South East Asia Pte Ltd (“BSEA”). BSEA is a subsidiary of BASF, the world’s leading chemical company. The Project will be located in the Banyan District of Jurong Island in Singapore. To be completed in calendar year 2Q 2013, the Project will have a gross floor area of approximately 1,125 square metres over two floors. It will house BSEA’s state-of-the art antioxidant production line for Irganox 1010, as announced by BASF Plastic Additives on 18 May 2012. The latest contract has raised the Boustead Group’s order book backlog (as at the end of September plus new orders since then) to S$340 million. (Closing price: S$1.105, +2.315%)

Yangzijiang Shipbuilding (Holdings) Ltd. (“YZJ” or the “Company”) announced that a new subsidiary of the Company, Jiangsu Leyuan Innovation International Trading Co., Ltd (“JLIITCO”), has been incorporated in the People’s Republic of China with a registered paid-up capital of RMB 10 million through its wholly-owned subsidiary, Jiangsu Yangzijiang Shipbuilding Co. Ltd by subscribing for 100% of the equity interest in the capital of JLYIITCO. The core business of JLIITCO is related to import, export and trading of metals including raw materials and products. This investment is expected to be an additional revenue stream to the Group and to reduce the dependency on the import and export of steel related products from third party for the shipbuilding activities of YZJ. (Closing price: S$1.000, +1.523%)

Bonvests Holdings Limited (the “Company”) announced that its subsidiary, Singapore Tunisian Investment Company has entered into an agreement to acquire land and building (the “Acquisition”) located at The Medina Tunis, Tunisia at the purchase price of TD2,800,000. The said land has an estimated land area of 1,140 sq metres and the building after development into a hotel has an estimated area of 3,166 sq metres.  The Acquisition is subject to the permission from the governor of Tunis and the seller has contracted to obtain such Permission. (Closing price: S$1.125, unchanged)

Source: PhillipCapital Research - 24 Jan 2013