Morning Market Commentary

- STI: +0.26% to 3282.7                                      - SET: +1.70% to 1499.2
- JCI: +0.63% to 4481.6                                      - KLCI: -0.01 to 1627.6
- HSCEI: +0.70% to 12215                                 - Hang Seng: -0.03% to 23721.8
- Nikkei 225: +0.47 to 11191.3                           - ASX200: +0.87% to 4921.1
- India NIFTY: -0.59% to 5998.9                          - S&P500: +1.01% to 1513.2

MARKET OUTLOOK:
By Joshua Tan, Hd of Research

Profit taking lasted like... half a morning! The STI, HSCEI, Hang Seng swiftly regained ground mid-morning, so our view that profit taking might soon set in has been proven premature.

Perhaps we were too eager, underestimating the fear trade – the fear of missing out. We have after all been declaring this year to be a year for equities.

The STI (ETF: SPDR STI (ES3 SGX)) looks poised to challenge the 3300, a breakthrough is a milestone for a major push higher..

The HSCEI (ETF:2828 HK) and Hang Seng (ETF: 2800 HK) are convincingly grinding through their respective resistance regions 12-14k and 23-25k.

China A shares, the CSI300 (83188 HK), has ploughed thru the 2700 and will take on the very key 2800 resistance.

The S&P500 (SPX US) has received renewed impetus Friday night from a positive jobs report and there is now little in the way of defined resistance lines expect for the all time high of 1576.

All mentioned indices are tradable with PhillipCFD.

In terms of economic data, the all important non-farm payrolls put in a decent 157k jobs added for January, close to consensus estimates. But the major surprise was from the massive upward revisions for Nov and Dec11, total 127k EXTRA jobs added, which points to greater momentum to absorb the payroll tax reversions this year. Global mfg PMI shows the world to be at a 10 month high. US mfg PMI rebounded in line. China services surprised on the upside.

Chief risk to this swimmingly good outlook of course is the 1st March US sequester and the 18th May US debt ceiling deadlines. Functioning US economy, dysfunctional Congress.

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 likes China Life Insurance (2628 HK), China Lumena New Material (67.HK)
- Hd of HK Research likes 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). All 3 picks have already exceeded or are very close to TPs, so we look forward to 4q12 earnings to reassess their TPs. We have also revised SATS (Accumulate, TP:S$3.33) TP higher, as the company has the potential to increase dividends FY03/13.
 

Macro Data:

In the US, the economy continues to improve. Manufacturing activity continued to expand with the ISM manufacturing  headline surging 2.9 pts m-m to 53.1 in Jan on the back of gains in new orders. Consumer confidence remained buoyant, increasing 0.9pts m-m to print 73.8 in Jan, according to the University of Michigan's consumer sentiment index after an 11th-hour fiscal compromise was reached (though that was not a grand bargain). On the labour front, non-farm employment rose 157,000 in Jan. However, the unemployment rate inched up 0.1pts m-m to 7.9%, warranting accommodative financial conditions in the near term.

In the EZ, manufacturing PMI ticked up 1.8pts m-m to an 11-month high of 47.9 in Jan, consistent with our view that the pace of contraction in the Eurozone is turning less negative (i.e. easing). Inflation moderated from 2.2% in Dec to 2.0% in Jan, on account of slower increases in energy prices as well as sluggish domestic demand. Unemployment rate remained elevated at 11.7% in Dec.

In Indonesia, inflation surged 1.03% m-m in Jan owing to higher food prices as a result of monsoon floods. On a y-y basis, inflation accelerated from 4.3% in Dec to 4.57% in Jan. Core inflation, remained stable at 4.3% y-y in Jan, compared to 4.4% in the preceding month. External balances improved with the trade deficit narrowing to US$0.15bn in Dec, compared to US$0.48 billion in Nov, on account of decelerating imports (-5.6% y-y) and sluggish exports (-9.8% y-y).

In Thailand, inflation moderated from 3.63% y-y in Dec to 3.39% in Jan. Core inflation - which guides monetary policy- eased from 1.78% in Dec to 1.59% in Jan, within the central bank's target range of 0.5 to 3.0%. We reckon that the central bank (BoT) is likely to maintain the benchmark one-day bond repurchase rate at 2.75% in view of resilient domestic demand as well as an improving global economy.
 

Regional Market Focus

Singapore
 

• The benchmark STI was little changed at 3,291.14 (+0.26%). 3.2bn shares were traded with value worth S$1.6bn.
• ST Engineering (Accumulate, TP: S$3.96) rallied strongly on news of a major contract win to design and build eight new vessels for the Singapore Navy. At the moment, information on the contract is scarce, but we expect more clarifications at the upcoming results briefing.
• 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
 

• Thai stocks surprisingly performed much better than we expected last Fri. Even though China’s PMI data came in below expectations, the global liquidity glut continued to drive equities sharply higher led by big-cap energy, bank and property stocks.
• Better-than-expected US economic data with the pace of growth in the manufacturing sector in Jan surging to its highest level in nine months, consumer sentiment rising more than expected last month and Dec construction spending beating forecasts pushed the Dow industrials to close above 14,000 for the first time in five years since Oct 2007. We believe stock markets in Asia today are likely to take their cue from a bullish close in the US and the composite SET index appears to be headed for a test of 1,500. With a sharp rally of more than 25 points last Fri and the SET index approaching a key psychological level of 1,500, we think sporadic bouts of profit taking may likely pick up. Heading into the month of Feb, concerns about US budget cut talks will return to the fore again as clock ticks to the Mar deadline. Overall we expect the composite SET index to trade in a range of 1490-1508 today.
• In the near term, we believe short-term plays will continue to do well in current market conditions but investors should be more cautious in trading.
• Today we peg resistance for the SET index at 1508-1513 and support at 1492-1486.

Indonesia
 

• Most Indonesian stocks ended higher Friday (01/02), led by agriculture sector, as Asia markets climbed on investors’ optimism about China’s economy. The Jakarta Composite Index (JCI) advanced 27.931 points, or 0.63%, to close at 4,481.634. The advance included six of the 9 major industry groups, with the agriculture sector rallied 2.37%, financial sector gained 1.34%, and miscellaneous industry climbed 1.28%. The significant gain in agriculture sector was supported by shares of Astra Agro Lestari (AALI +1.59%), BW Plantation (BWPT +3.88%), and PP London Sumatra (LSIP +3.41%). LQ45 – the index trailing Indonesia’s blue-chip shares – added 4.925 points, or 0.65%, to close at 766.181, with shares of Bank Negara Indonesia (BBNI) jumped 8.28% to IDR 4,250. More than 150 shares rose, 98 shares fell, and 220 shares stagnated Friday on the Indonesia Stock Exchange, where 4.423 billion shares valued at IDR 5.437 trillion changed hands on the regular board. Foreign investors accumulated net purchases worth IDR 735.67 billion.
• The Jakarta Composite Index (JCI) looked set for a climb today, continuing last week’s gain, and with positive closes on US markets that may give support to regional Asia stocks. We expect the JCI to trade with support and resistance at 4,424.17 and 4,548.19 respectively.

Sri Lanka
 

• Market continued to show volatility on the last trading day. The Colombo bourse concluded the last trading day of the week on a negative sentiment, mostly due to investors realising there profits. The ASPI dropped 17.20 points or (0.30%) to end the day at 7799.69. The S&P SL20 index too dropped 0.80 (0.03%) points to close the day at 3196.81. The turnover for the day was recorded as LKR 951.07Mn which is a 72.23% reduction compared to previous trading day. Foreign investor sentiment changed to a positive outlook resulting in a net foreign inflow of LKR 446.08Mn for the day.
• A week with underline signs of volatility. The market commenced the last week of January with the local Treasury bond market yielding lower on both primary and secondary markets despite the January inflating reaching its six months peak of 9.8%. The 5 year Bonds yielding at 10.74% which was 16bsp lower than the last auction, with the secondary market quoting 10.90/95. Further with 3rd quarter results published been better than expected the selected counters gained momentum. However the overall market failed to gain momentum due to inevitable selling pressure coming into the market due to profit taking by investors. Amidst money market liquidity increasing the market displayed an overall negative movement during the week losing 78.5 points or (1.34%), with the market closing on its first trading day of the month at 5,799.69 which is the lowest since 15th January 2013 (5,750.24).at the same time S&P SL20 index stood at 3,196.81 gaining 6.16 points (0.19%) during the week.
• The turnover for the week was LKR 9.17Bn supported by 52 crossings totalling up to LKR 5.69Bn accounting to a 62% contribution to the weekly turnover while recording a 89.39% increase compared to the previous weeks turnover.  143.07Mn shares changed hands during the week, this was a 51.66% reduction compared to the previous week.  Foreign sellers outnumbered the buyers with the market recording LKR 5.21Bn selling and LKR 4.79Bn buying resulting in a net outflow of LKR 514.3Mn for the week; while extending the year to date net foreign outflow to LKR 873.5Mn. As at the week’s closure, the total market capitalization stood at LKR 2.23Tn, recording a year to date gain of 2.78% and the market PER(X) and PBV(X) stood at 16.41 and 2.13 respectively. The USD closed the week at LKR 128.08/-.
• Treasury bill rates drop for the 8th consecutive week The TB rates experienced a further reduction during the weekly auction held last Wednesday. The One year TB rate dropped by 14 basis points to 11.11% during the week and the 6 months rate dropped by 13 basis points to 10.28%. Further, the 3-month yield dropped by 16 basis points to 9.47% during the week.

Australia
 

• The Australian share market on Friday returned to its two-week bull run as investors, buoyed by a positive US earnings season, turned to high-yielding stocks. At the close, the benchmark S&P/ASX200 index had risen 42.3 points or 0.87 per cent to 4,921.1.
• Today, the local market looks set to open higher following a stellar performance on Wall Street at the end of the week with the Dow finishing above 14,000 for the first time since October 2007. The SFE Futures 200 is pointing upwards 17 points or 0.34 to 4,896.
• In economic news for Monday, Australian Bureau of Statistics (ABS) is due to release its building approvals for December. The TD Securities/Melbourne Institute Monthly Inflation Gauge and the Dun and Bradstreet business expectations survey are both expected.
• No major equities news is expected.

Hong Kong
 

• Local stocks dropped. The HSI and HSCEI dropped 7 points and rose 84 points to 23721 and 12215 respectively. Market volume was 70.561 billion, dropped 0.9% dod.
• We believe the market is going to consolidate, as some of the technical indicators shows the HSI is overbuying. 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 24000 level.

Morning Note

Company Highlights

Epicentre Holdings Limited (the “Company”, and together with its subsidiaries, the “Group”) announced certain business updates and issue a profit warning following a preliminary review of the Group’s performance for the six months financial period ended 31 December 2012 (“1H2013”). Due to, amongst others, market and operating conditions in the PRC, the Group has decided to cease operations in the PRC, and close all its PRC outlets. The Company further wishes to announce that the Group is expected to report a loss for 1H2013. The expected loss is attributed to, amongst others, losses arising from the PRC operations. Further details of the Group’s performance will be disclosed when the Group announces its financial results for 1H2013 on or before 14 February 2013. (Closing price: S$0.330, unchanged)

Superior Multi-Packaging Limited (the “Company”, and together with its subsidiaries, the “Group”) announced that the Group is expected to report a loss for the financial year ended 31 December 2012 (“FY2012”). The expected loss is attributable to: i) Asset impairment following the Group’s business review; ii) Impairment of goodwill arising from previous business acquisitions. The profit guidance is based on a preliminary review of the unaudited financial results of the Group for FY2012. Further details of the Group's financial performance will be disclosed when the Company announces its unaudited financial results for FY2012, on or before 1 March 2013. (Closing price: S$0.140, unchanged)

Rowsley Limited (the “Company”, and together with its subsidiaries, the “Group”) announced that further to the 21 December 2012 Announcement, the Company entered into the following Definitive Agreements: (a) the sale and purchase agreement in respect of the acquisition of the Proforma RSP Group for a consideration of up to S$187.50 million to be satisfied by way of allotment and issuance of up to 1,250,000,000 Shares at an issue price of S$0.150 per Share; and (b) the sale and purchase agreement in respect of the Land Acquisition for a consideration of S$358.00 million to be satisfied by way of allotment and issuance of 2,386,666,666 Shares at an issue price of S$0.150 per Share. The RSP Completion and the Land Completion are to be concurrent and inter-conditional. (Closing price: S$0.290, unchanged)

Serial System Limited (the “Company”) announced that Serial Microelectronics Pte Ltd (SMPL), a wholly-owned subsidiary of the Company, has entered into a conditional sale and purchase agreement with AMSC Co., Ltd. (AMSC), whereby: (a) SMPL and AMSC will form a joint venture to sell and distribute semiconductors and other electronic products in Japan; and (b) SMPL has agreed to purchase such shares as may represent 60% of the issued share capital of Serial AMSC Microelectronics Co., Ltd. (JVC) pursuant to the Joint Venture. The JVC is a private limited company (kabushiki kaisha) to be incorporated by AMSC in Japan on or around March 2013, and will have an issued share capital of 300 million (approximately S$4.08 million) comprising 6,000 ordinary shares. (Closing price: S$0.128, +1.6%)

YTL Starhill Global REIT Management Limited as manager of Starhill Global Real Estate Investment Trust ("Starhill Global REIT") announced that Starhill Global REIT has divested its entire beneficial interests in the Roppongi Primo Property for a cash consideration of JPY700.0 million (or approximately S$9.5 million) (the “Sale”). The Sale is part of Starhill Global REIT’s approach in reviewing and re-balancing its Japan portfolio. The net sale proceeds after payment of transaction expenses will be substantially used to repay Yen loans. The gearing of Starhill Global REIT is expected to decrease from 30.3% to 30.0% upon such repayment. The pro forma financial effects of the Sale on the distribution per unit of Starhill Global REIT (“DPU”) for the financial year ended 31 December 2012 and on the net asset value (“NAV”) per unit as at 31 December 2012 are not expected to be material. (Closing price: S$0.840, -0.6%)

Keppel Corporation Limited (the “Company”) announced that Keppel FELS held naming ceremonies for twin jackup rigs built for Transocean, and another jackup rig built for Asia Offshore Drilling (AOD), which is majority owned and managed by Seadrill Limited. For the early completion of two of these rigs, Keppel FELS will receive a combined bonus of about US$1.5 million. (Closing price: S$11.58, +0.7%)

Source: PhillipCapital Research - 04 Feb 2013