Morning Market Commentary

- STI: +0.80% to 3285.9                                      - SET: +0.81% to 1490.8
- JCI: +0.31% to 4452.9                                      - KLCI: -0.59 to 1627.7
- HSCEI: +0.78% to 12172.2                             - Hang Seng: +0.71% to 23822.1
- Nikkei 225: +2.28 to 11114                             - S&P500: -0.39% to 1501.9

MARKET OUTLOOK:
By Joshua Tan, Hd of Research

US 4q12 GDP growth registered an unexpected mild contraction -0.1%q-q annual pace. But the headline number really does obscure underlying strength – consumption and fixed asset investment, the core of the US economy, added strongly. Detractions were mainly from one-quarter events – inventory took a huge hit due to the fiscal cliff which has since seen a positive resolution for middle class taxes, exports was poor but the global economy is rebounding, and defense spending fell dramatically due to the on-going sequester saga. While we expect inventory and exports to come back, defense spending may be hampered by the sequester. Overall, we think 4q12 was strong likelihood for upward revision to a positive print as this advanced estimate only uses 2 months of data. We do not also think our 2013 outlook of OW stocks MW bonds needs to be revised.

Chief risk of course is that the US sequester/debt ceiling debate this Feb/Mar if it really does end ugly.

Bond markets certainly did NOT think the US GDP data was bad, as 10yr Treasuries further fell to drive yields to above 2% now! And Crude oil continued its rise to US$97! So if there is a negative reaction in Asia Equity markets today, we do not expect corrections to be deep, but merely an excuse to take profit given the strong run-up. We expect eventual buying on weakness if such profit taking occurs.

A note on the KLCI – yesterday’s fall eventually closed with an intraday rebound above the 200dma, so we have survived a second test of that key support (in this correction), which provides more impetus for another try for a rebound. Again we wish to highlight the risks for this index – even if it rebounds, beware downside volatility on political risk.

No change to 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:
- Hd of China Research, top picks: China Life Insurance (2628 HK), China Lumena New Material (67 HK)
- Hd of HK Research, top picks: AIA (1299 HK) and HSBC (5 HK)
- SG Equity Strategist (Derrick Heng): For 1Q2013, we believe that cyclical stocks in the Industrials space could do well in the near term: SIA (Buy, TP: S$13.40), Keppel Corp. (Accumulate, TP: S$12.38) & NOL (Accumulate, TP: S$1.36). Top picks for the year are Pan United (Buy, TP: S$0.88), SIAEC (Buy, TP: S$5.00) & Capitaland (Accumulate, TP: S$3.97). 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. Although current price (S$0.99) has overshot our TP, we look forward to 4q12 results to reassess our TP. SIAEC is a key beneficiary of the aviation capacity 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.

Macro Data:

In US, GDP unexpectedly fell in 4q12 by annualized 0.1%q-q, but the headline weakness obscures underlying strength. Household consumption and fixed asset investment, the core of the economy, has remained fairly strong. Consumption growth accelerated to annualized 2.2%q-q (+1.5%pts), faster than the 1.6% growth rate in 3q12 and beating the market expected 2.1% pace. Total fixed investment rose 9.7%q-q annual pace (+1.2%pts) with strong gains in Corporate spending on equipment and software (12.4%q-q annual pace, +0.9%pts) after the 2.6% decline in 3q12, and Residential construction continuing to gain as well (15.3% q-q annual pace, +0.4%pts).. The main drags to 4q12 was due to the biggest plunge in defense spending in four decades (-1.3%pts), inventory drawdown (-1.3%pts), export weakness (-0.8%pts). Core inflation reported 0.9% y-y in 4q12, compared to the 1.1% y-y pace in 3q12. With the tame inflation and economy at moderate expansion, the FED is likely to continue the QE.

In Euro zone, economic confidence index rose to 89.2 in Jan from a revised 87.8 in Dec, higher than the market expected 88.2, indicating an improving business confidence. Regardless the improvement in sentiment, In Spain, recession deepened more than economists forecast in the fourth quarter as the government’s struggle to rein in the euro region’s second-largest budget deficit weighed on domestic demand. Gross domestic product fell by 0.7% q-q in 4q12, exceeding the 0.6% contraction predicted by the Bank of Spain and comparing to the 0.28% q-q drop in 3q12. Over the year, GDP contracted by 1.8% in 4q12, compared to the 1.6% y-y gain in 3q12.

In South Korea, industrial production unexpectedly rose by 0.8% y-y in Dec, while the market was predicting a 1.5% y-y fall. South Korea’s government is frontloading budget spending in the first half to spur economic growth as won gains and yen weakness aid export rivals in Japan.

Regional Market Focus

Singapore

• The benchmark STI inched up 26.15 points or 0.8% higher to end at 3,285.90. 4.2bn shares were traded with value worth S$1.9bn.
• United Engineers (UE) launched a counter-offer yesterday for WBL at $4 a share, trumped the offer made by Straits Trading Company in November.
• SATS reported a 23% surged in profit for 3QFY13. Our transport analyst maintains his Accumulate rating on the stock with revised TP of $3.33.
• For 1Q2013, we believe that cyclical stocks in the Industrials space could do well in the near term: SIA (Buy, TP: S$13.40), Keppel Corp. (Accumulate, TP: S$12.38) & NOL (Accumulate, TP: S$1.36).
• Top picks for the year are Pan United (Buy, TP: S$0.88), SIAEC (Buy, TP: S$5.00) & Capitaland (Accumulate, TP: S$3.97). 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. Although current price (S$0.97) has overshot our TP, and may experience short term profit taking, we look forward to 4q12 results to reassess our TP. 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 continued to make new highs on Wed, led by laggard energy names but foreign investors turned net sellers of Thai shares again though big-caps led the market’s advance.
• Disappointing US economic data showing GDP unexpectedly contracted by a 0.1% annual rate in 4Q12, down from 3.1% growth in 3Q12 and short of market consensus of 1.1% growth would be a short-term drag that could knock the market into correction mode after an extended market run-up. If we look at the monthly performance of the Thai stock market, the composite SET index entered the eighth straight month of higher finishes while sporadic foreign profit taking picked up pace and foreign investors held net short positions in futures. Short-term sector rotation plays would also bring volatility to the market along the way and leave the market more vulnerable to the risk of correction.
• In the near term, investors should be cautious in short-term trading.
• Today we peg resistance for the SET index at 1495-1507 and support at 1486-1480.

Indonesia

• Most Indonesian stocks rose Wednesday (30/01), as stock markets in Asia advanced ahead of the result from the US Federal Open Market Committee meeting that may give signal as to when the US central bank will start limiting its stimulus. The Jakarta Composite Index climbed 13.945 points, or 0.31%, to close at 4,452.975. The gain included five of the 9 major industry groups, led by construction sector with 1.89%-rise, consumer goods with 0.77%-advance, and financial sector with 0.72%-gain. Most of the blue-chip stocks also rose on the IDX on Wednesday, with the LQ45 index that measures them added 3.492 points, or 0.46%, to close at 761.139, with 21 of its 45 components closed in positive zone. More than 125 shares advanced, 110 shares declined, and 233 shares stayed unchanged Wednesday on the Indonesia Stock Exchange, where 4.143 billion shares valued at IDR 4.421 trillion (IDR 456.71 million) traded on the regular board. Foreign market participants accumulated net purchases worth IDR 401.73 billion (USD 41.50 million) in total.
• Negative tone from the US market overnight may lead to retreat for Indonesian stocks today. We expect the JCI to trade lower today, with support at 4,424.57 and resistance at 4,471.13.

Sri Lanka

• The Colombo bourse ended the day entering in to positive territory again and both indices were retained in the green terrain regardless of the witnessed selling pressure on early hours of trade. The benchmark ASPI Index gained 25.15 points and closed at 5,825.90 or 0.43%; this upward was derived after 3 consecutive red trading days which resulted in the loss of 82.91 points or 1.41%. The S&P SL20 Index set base to 3,193.63, gaining 7.87 points or 0.25%. The market capitalization for the day was LKR 2.24Tn recording a year to date gain of 3.25%.The crossing abundant daily turnover of LKR 2.68Bn was a 98.28% increase compared to the prior trading day. Moreover, this was the highest turnover recorded after the 19th of November.The best performers under the sectorial review were Banking, Finance & Insurance (LKR2.4Bn) and Diversified Holdings (LKR 104Mn). A total of 42.3Mn changed hands during the day; this was an increase of 50.35% compared to the previous trading day. Price gainers outpaced the price losers at a ratio of 89:75. The foreigners were bearish for the first time during the week resulting a net foreign outflow of LKR 1.43Bn while, recording a year to date net foreign outflow of LKR 1.03Bn. The USD closed the day at a quoted price of LKR 128.41/-.

Australia

• On Wednesday, the Australian share market pulled back in late trading though still managed to close slightly higher, with investors unfazed by Prime Minister Julia Gillard announcing that the next federal election would be on September 14. The benchmark S&P/ASX200 index rose 7.7 points or 0.16 per cent to 4,896.7.
• Today, the local market looks set to open flat following the release of data from Wall Street overnight showing that the US economy contracted in the fourth quarter last year.
• Locally, on the economic news front for Thursday, the Reserve Bank of Australia (RBA) is due to release the financial aggregates for December, while the Australian Bureau of Statistics (ABS) is slated to release international trade prices indexes for December quarter. Also, the Housing Industry Association's new home sales data for December 2012 is due out, as is the National Australia Bank's December quarter Residential Property Survey.
• In equities news, Lynas Corporation (LYC.ASX) is due to release its second quarter activities report, Origin Energy (ORG.ASX) its second quarter production report, and Woolworths (WOW.ASX), its second quarter sales results. Meanwhile, Orica (ORI.ASX) has its annual general meeting.

Hong Kong

• Local stocks surged. The HSI and HSCEI gained 166 points and 94 points to 23822 and 12172 respectively. Market volume was 76.129 billion, rose 0.6% dod.
• HSI surged at the day of clearing. 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

United Engineers Limited (UE) launched a takeover for WBL Corporation Limited (WBL) in an all-cash pre-conditional voluntary general offer (the Offer) that values WBL at close to $1.1 billion.  The Offer by UE’s subsidiary, UE Centennial Venture Pte Ltd (the Offeror), is  for the remaining 61.7% of WBL, or 167.6 million shares, and all outstanding  convertible bonds in WBL, that the Offeror and its concert parties do not own. The Offer price at $4.00 per share is at a 19.0% premium to a competing cash offer (adjusted for dividend). It represents a 14.0%, 13.3% and 12.0% premium to the last transacted price on 23 November 2012, 1-month volume weighted average  price (VWAP) and 3-month VWAP up to 23 November 2012, respectively. (UE Closing price: S$3.320, unchanged; WBL Closing price: S$4.200, unchanged)

Libra Group Limited (the “Company” and its subsidiaries, the“Group”) announced that the Group is expected to report a net loss for its full year financial results ended 31 December 2012 (“Full Year”), mainly due to the writing-off and provisioning of gross  amounts due from certain specific customers for contract work-in-progress. This is in respect of  variation orders which are now deemed not recoverable from these specific customers (Closing price: S$0.085, unchanged)

Saizen Real Estate Investment Trust (“Saizen REIT”), announced the acquisition of Clair Court Roka Koen by its TK operator Yugen Kaisha (“YK”) Kokkei (the “Acquisition”). YK Kokkei has entered into a conditional sale and purchase  agreement for the acquisition of Clair Court Roka Koen (“CCRK”) from an independent  party for a cash consideration of JPY 712,516,829 (S$9.7 million) (the“Purchase Price”).  The Purchase Price will be paid on the completion date, which is expected to be on or around 26 February 2013 (Closing price: S$0.1980, +1.0%)

Source: PhillipCapital Research - 31 Jan 2013