Morning Market Commentary

- STI: +0.64% to 3269.3
- MSCI SE Asia: +0.20% to 883.4
- HSCEI: -0.78% to 12001.8
- Hang Seng: -0.08% to 23580.4
- MSCI APxJ: -0.32% to 475.8
- Euro Stoxx 50: +0.78% to 2744.2
- S&P500: +0.54% to 1502.9

MARKET OUTLOOK:
By Joshua Tan, Hd of Research

The S&P500 and STI built strongly on gains from the start of last week as we had been expecting. For the S&P500 we decisively cleared the crucial 1470 on the back of better economic and earnings data, we are now 30pts above it, and just ~60pts away from the 2007 high. As for the STI, we are not far from challenging this cycle’s high of 3300 put back in 2010. We expect both markets to build on their gains this week, or if not, to at least consolidate at their support levels (S&P: 1470, STI: 3200) for an eventual push higher.

Our expectation of China heading higher last week was cut short on Thu due to N.Korea’s threat of a nuclear test aimed at “arch-enemy” the USA. HSCEI gave back about 2% gains to nonetheless close above the crucial 12k mark, hopefully now turned into support. CSI300 had a more ominous rejection off the 2650, turning a 2% gain into a 1% loss for the week. Hang Seng was less volatile and closed more or less flat. This kind of sabre-rattling has happened before, which markets eventually shrug off. We expect the same again. We are looking for Greater China markets to, if not go higher, at least consolidate on support levels (HSCEI: 12k, CSI: 2500, Hang Seng: 23k). Industrial profit data suggests earnings have bottomed, and we look forward to the leadership renewal in March and the possible catalytic reforms.

The KLCI has built on its bounce off the 50wma and 200dma, so the short term trading signal suggests go long. But something to note about the KLCI to keep one’s stops tight: 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.

(Short term traders looking to trade the indexes mentioned should keep their stops tight in view uncertainty – N.Korea’s sabre-ratting being a case in point.)

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, while MW on the US, MY and ID. Investors looking to invest in the first 4 markets should check out our Country Strategy reports, else invest/trade them thru ETFs/PhillipCFDs listed in the Asset Strategy reports (see Sector/Strategy Reports section).

Equity Strategists calls are:
- Hd of China Research: China Life Insurance (2628 HK), China Lumena New Material(67 HK)
- Hd of HK Research: AIA (1299 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.
 

Macro Data:

In Germany, IFO Business climate index rose for a third consecutive month to 104.2 in Jan, beating the market expected 103.0, after the 102.4 reading in Dec. The Bundesbank said this week there are indications that the economy is already rebounding from a contraction in the final quarter of 2012, even as the sovereign debt crisis curbs demand in Germany’s euro-area trading partners. Ifo’s gauge of executives’ expectations rose to 100.5 from 98, while a measure of the current situation increased to 108 from 107.1. Though there are green shoots in Germany, the Euro economy, as a whole, is still in struggling in the recession due to the prolonged debt crisis. The Euro economy probably stagnates in the first quarter after a 0.4 percent contraction in 4q12.

In UK, GDP contracted by 0.3% q-q in 4q12, worse than the market expected 0.1% q-q drop, after the 0.9% q-q gain in 3q12. The higher than expected contraction points to UK’s lackluster economic outlook. On y-y basis, GDP is stagnant in 4q12 from a year ago, while the market was predicting 0.2% y-y gain. While jobless benefit claims have fallen to a 1 1/2-year low, the government budget-deficit squeeze may keep weighing on growth while heavy snow this month has raised the possibility of a further quarterly contraction.

Chinese industrial companies’ profits rose for a fourth month in December, adding to signs the country’s economic rebound is gaining momentum. Net income increased 17.3% from a year earlier to 895 billion yuan ($144 billion), after a 22.8% y-y jump in November. Earnings for the full year gained 5.3% y-y.

In Singapore, industrial production unexpectedly rose by 5.4% m-m in Dec (+1.2%m-m ex-biomed), while the market was expecting a 0.7% m-m drop, after the 1.9% m-m gain in Nov. On y-y basis, industrial production declined 0.6%, ex-biomed it fell 5.2%y-y. Singapore's electronics output fell 16.9% y-y in Dec, worsening from the revised 3.6% y-y drop of Nov. For all of 2012, electronics production fell 11.3% y-y.
 

Regional Market Focus

Singapore
 

• The benchmark STI traded higher to 3,269.31 (+0.64%). 3.1bn shares were traded with value worth S$1.8bn.
• Full year results for Parkway Life REIT exceeded our expectations with our analyst maintaining his Accumulate rating and raising his target price on the stock. Going forward, we expect positives to come from 1) Asset Enhancement Initiatives for its Japan properties, 2) rental reversion for its CPI-pegged properties in Singapore and 3) Inorganic growth through acquisitions.
• 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 composite SET index extended its rally to test new highs at 1460 led by sector rotation into big-cap bank, building material and energy names.
• Even though Thai stocks continued to make new highs, investors should watch out for more swings along the way, which may present both opportunities and risks at the same time. In the near term, market-moving factors remained positive for the most part on the back of better-than-expected economic data out of Europe and strong earnings reports from US companies. Foreign investors also increased their net purchases of Thai stocks to the tune of nearly Bt1.6bn last Fri. Signs of improvement for European banks which will repay the European Central Bank much more than expected of the loans the bank gave them during the crisis also helped the euro to regain ground and weakened the US dollar while the Thai baht extended its weakness to near 30 per US dollar, a factor that could trigger some profit taking. Today we expect the composite SET index to trade in a range of 1456-1470.
• In the near term, we believe short-term plays will continue to do well in current market conditions but investors should be cautious in trading.
• Today we peg resistance for the SET index at 1470-1474 and support at 1456-1447.

Indonesia

• Most Indonesian stocks advanced, ending earlier flat session on Friday (25/01), as stock markets in Asia climbed, led by Japan’s Nikkei as the Yen weakened. The Jakarta Composite Index gained 18.871 points, or 0.43%, to close at 4,437.598. The gain included six of the 9 major industry groups, with financial sector climbed 1.34%, infrastructure sector gained 1.24%, and construction, property, and real estate sector advanced 0.60%. LQ45 – the index tracking Indonesia’s blue-chip stocks – added 3.254 points, or 0.43%, to close at 758.469. More than 113 shares advanced, 124 shares declined, and 233 shares stagnated Friday on the Indonesia Stock Exchange, where 4.056 billion shares worth IDR 4.695 trillion changed hands on the regular board. Foreign investors posted net purchases worth IDR 822.88 billion.
• Indonesian stocks will likely advance today, with positive lead from US markets. The Jakarta Composite Index looked set to trade higher with support at 4,402.42 and resistance at 4,457.70.

Sri Lanka
 

• The Sri Lanka market is closed for a public holiday.

Australia
 

• The Australian market is closed for a public holiday.

Hong Kong
 

• Local stocks swung between gain and loss. The HSI and HSCEI dropped 18 point and 93 points to 23580 and 12001 respectively. Market volume was 81.669 billion, rose 3.5% dod.
• Investors lost trading direction, we believe the market is going to consolidate, as some of the technical indicators shows the HSI is overbought. We suggest for investors 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

Tsit Wing International Holdings Limited announced that its wholly owned subsidiary, Tsit Wing International Company Limited has entered into a conditional sale and purchase agreement with Whole Sun Limited. The purchase consideration for the Business and Business Assets is HK$33,600,000, and was arrived at following arm’s length negotiation (Closing price: S$0.230, unchanged)

Asia Fashion Holdings Limited issued a profit warning announcement in respect of the financial results of the Group. It is expected that the Group will report a significant loss for the Unaudited Results for FY2012 due to the following reasons: 1. Persistent fierce competition within the industry; 2. Weakened demand in fabrics from existing customers resulting in declined sales and average selling prices. (Closing price: S$0.041, unchanged)

R H Energy Ltd. announced that the Company has entered into a nonbinding memorandum of understanding with Sinway Investment Co., Ltd and ChiwayLand Group (Singapore) Pte. Ltd. in relation to the following: (a) the proposed acquisition by the Company of the entire issued and paid-up share capital of ChiwayLand from the Vendor; and (b) the proposed   disposal of the Company’s existing business to Petchem Holdings Pte. Ltd., the controlling shareholder of the Company. The aggregate consideration payable by the Company for the entire share issued and paid-up share capital of ChiwayLand, is up to a maximum of S$396,000,000, which was arrived at after arm’s length negotiation, (Closing price: S$0.143, unchanged)

Yamada Green Resources Limited (the .Group.) wished to caution our shareholders that the Group’s profit is expected to be significantly lower for the second quarter of FY2013, i.e the period from 1 October 2012 to 31 December 2012 ("2Q2013"), as compared to the corresponding quarter in the previous financial year ("2Q2012"). Lower profit was mainly attributable to lower yield and lower than expected prices of fresh shiitake mushroom coupled with the increase in raw materials cost of synthetic logs for 2Q2013, as compared to 2Q2012. (Closing price: S$0.130, -0.763%)

Source: PhillipCapital Research - 28 Jan 2013