Morning Market Commentary

- STI: +0.12% to 3276.5                                - SET: -0.36% to 1500.4
- JCI: +0.44% to 4499.0                                - KLCI: -1.18% to 1614.1
- HSCEI: +0.30% to 11849.2                        - Hang Seng: +0.47% to 23256.9
- Nikkei 225: +3.77% to 11463.8                 - ASX200: +0.28% to 3306.3
- India NIFTY: +0.04% to 5959.2                  - S&P500: +0.05% to 1512.12

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

CFD traders can look to short the KLCI via FBM KLCI MYR10 CFD. The KLCI has pierced through its 200dma support level, and selling pressure is likely to intensify. Near-term support at around 1600-1605. In Malaysia, the near-term trend for the KLCI is still down in view of the political risk. As early as our inaugural Malaysia Macro report in May 2012, we have highlighted that market valuations for Malaysia are not cheap and might not have market valuations may not have priced in possible downside risks from the upcoming elections - a recurrent theme that we have emphasised in our subsequent ASEAN Macro Strategy reports. We maintained our outlook for the KLCI at Marketweight as although we like the domestic demand story, valuations are non-compelling in view of the considerable political risk ahead of the 13th General Elections which threatens to undermine Malaysia’s robust macro fundamentals. Specifically, in the event that the incumbent Barisan Nasional fail to obtain a strong mandate, the Economic Transformation Program and Government Transformation Program -major pillars of the domestic demand story- may be confronted with headwinds.

As guided in this note yesterday, the STI has -and will continue to- crawl along its 10dma support level. STI is likely to remain in a consolidation phase in the absence of a catalyst. 3400 will be the immediate psychological resistance level and the next major key resistance will be 3800 (attained in 2007).

In Japan, the Nikkei 225 rally still has legs. Our optimism -albeit a cautious one- takes into account the following:

(i)         While the Nikkei has ran up quite a fair bit since mid-November, it is important to view this rally in perspective. Specifically, the Nikkei had merely surpassed its 2011 pre-tsunami levels. There is still scope for the Nikkei to challenge the 14,000 resistance level (attained in mid 2008) before the 2008/09 global financial crisis slump.

(ii)        Expectations of a weaker yen with USDJPY likely to test major resistance at 95. Instead of finishing his term in April, BoJ Governor Shirakawa plans to resign the same time as his Deputy Governors in March. Thus, the stage is now set for PM Abe -with the necessary support from the opposition faction- to appoint a new BoJ Governor who will dutifully undertake aggressive monetary easing to reflate the economy. But we temper our optimism with some caution. We reckon it will be an uphill task -especially without other reforms- to revive the Japanese economy that has been plagued by prolonged deflation and unfavourable demographics.

[ETF: Nomura ETF Nikkei 225; CFD: Japan 225 Index JPY100 CFD (Nikkei 225)]

In Greater China, both the H-shares China Enterprise Index and Hang Sang Index bounced up from their respective 40dma but did not close Tuesday's breakaway gap (formed to the downside). There is a reasonable chance that the 40dma support level will be tested again, especially if the upcoming Chinese trade data turned out to be weaker-than-expected. Should the bulls fail to overwhelm the bears and close the breakaway gap (formed to the downside), we suggest to short H Shares Index HKD5 CFD and Hong Kong 40 Index HKD5 CFD, especially if their respective 40dma are also broken.

(All equity indices mentioned in this note are tradable with Phillip CFDs or ETFs)

Macro Data:

In Germany, factory orders rose 0.8% m-m sa in Dec, reversing from a 1.8% decline in the preceding month, on the back of an increase in orders from within the EZ bloc.

Regional Market Focus

Singapore

• The benchmark STI was little changed at 3,276.53 (+0.12%). 4.7bn shares were traded with value worth S$1.6bn.
• Despite a surprising decline in NIMs, our analyst maintained his positive view on DBS driven by our positive view on the global economic outlook. Our analyst continue to rate GLP as Neutral, but raised his TP due to positive effects of FX hedge, strong pipeline of development properties in Japan and expanded fund management platform.
• 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$6.10) & 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 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 moved back and forth in positive and negative territory on Wed. The composite SET index rebounded at the open but gains were limited before the main index later reversed course to the downside amid selling in key energy, bank and telecom counters but speculative buying in contractor and healthcare names lent support to the market. 
• There appears to be a lack of fresh positive triggers for a strong market rebound for the time being after the composite SET index extended the streak of higher closes to more than eight straight months. Overall we believe Thai stocks will likely continue to move in a sideways down action today with a possible pullback towards 1490. For short-term trading, cut loss point is pegged around 1483. Foreign fund flows also bear closer watching after foreign selling of Thai equities continued for a second consecutive day to the tune of nearly Bt2.3bn and foreigner investors increased their net short position in futures by 1,261 contracts. Euro-zone debt crisis is also another key factor to watch amid political uncertainty in Italy and Spain and Germany’s opposition to French plans for target rate on the threat of euro strength. Today the key events to watch include the European Central Bank’s policy meeting and a Spanish auction of up to 4.5bn euros of bonds.
• For short-term strategy, we recommend selective plays with focus on laggards relative to peers/broader market and expected to report impressive results and pay out attractive dividend.
• Today we peg resistance for the composite SET index at 1508-1513 and support at 1497-1483.

Indonesia

• Most Indonesian stocks moved upward on Wednesday (06/02), as most of major Asian markets closed higher after the positive sentiment on the Asian export market recovery. The Jakarta Composite Index gained 19.535 points, or 0.44%, to close at 4,498.976. The increase included seven of the 9 major industry groups, with mining sector was up 1.85%, trade & service increased 1.32%, and consumer goods sector improved 0.65%. Blue-chip shares also increased on Wednesday, as the LQ45 index that tracks these stocks added 3.000 points, or 0.39%, at 769.849, with 22 of its 45 components increased. 148 shares advanced, 82 shares declined, and 118 shares remained unchanged Tuesday on the Indonesia Stock Exchange, where 5.13 billion shares worth IDR 4.78 trillion changed hands on the regular board. Foreign investors accumulated net purchases worth IDR 455.87 billion.
• Stocks will likely be traded higher in Indonesia stock market today, as positive sentiment on better-than-estimated earnings of US companies may lead to upsides in regional Asia markets. We expect the Jakarta Composite Index (JCI) to trade with support and resistance at 4,454 and 4,544 respectively.

Sri Lanka

• A mixed trading pattern was observed throughout the day and both indices were floated on both regions. The All Share Price Index (ASPI) dropped marginal 1.21 points or 0.02% at the closure and ended the day at 5,780.09. S&P SL20 Price Index (S&P) closed at 3,217.39 within the green terrain, gaining 13.48 points or 0.42%.
• The market capitalization for the day stood at LKR 2.22Tn resulting a year to date gain of 2.44%. 230 counters traded during the day to record a turnover of LKR 1.17Bn.
• Banking, Finance and Insurance (LKR 967.7Mn) was the best performing sector for the day with increased investor interest. The total traded volume for the day consisted with 19.5Mn shares; this was tiny increase of 0.68% against the previous trading day. Price losers outnumbered the price gainers at a ratio of 119:59.
• Foreigners appeared to be bearish for the trading day, recording a net foreign outflow of LKR 70.6Mn which resulted a year to date net foreign outflow of LKR 940Mn. The USD closed the day at LKR 128.07/-.

Australia

• The Australian share market on Wednesday closed higher on the back of a positive lead from the United States market and the prospect of a cut to interest rates. The benchmark S&P/ASX200 index had risen 38.3 points or 0.78 per cent to 4,921.
• Today, the Australian market looks set to open flat despite falls on international markets overnight.
• On the local economic news front for Thursday, the Australian Bureau of Statistics (ABS) is due to release labour force figures for January, and the Australian Industry Group/Housing Industry Association its performance of construction index (PCI) for January and the National Australia Bank December its quarter business survey.
• In equities news, Telstra Corp (TLS.ASX), News Corp (NWS.ASX) and Tabcorp (TAH.ASX) are expected to post first half results and Australand (ALZ.ASX) is due to announce its full-year results while the National Australia Bank (NAB.ASX) is scheduled to give a first quarter trading report.

Hong Kong

• Hong Kong shares closed 0.47 per cent higher on Wednesday following gains on Wall Street and in line with a regional advance after the previous day's big losses.
• The benchmark Hang Seng Index rose 108.40 points to 23,256.93 on turnover of HK$74.78 billion (US$9.64 billion).
• Chinese shares ended flat. The benchmark Shanghai Composite Index rose 0.06 per cent, or 1.35 points, to 2,434.48 on turnover of 104.6 billion yuan (US$16.8 billion). (Source: AFP)

Morning Note

Company Highlights

Pteris Global Ltd announced that the Company has entered into a memorandum of understanding in relation to the proposed acquisition of Shenzhen CIMC-TianDa Airport Support Ltd (the “Target”) for an indicative consideration amount of approximately S$112 million (representing 9.5 times the audited FY12 PATMI of the Target). In satisfaction of the consideration, the Company intends to allot and issue such number of new ordinary shares in the share capital of the Company at an issue price per consideration Share of S$0.13. As the relative figures under Rule 1006 of the Listing Manual of the SGX-ST are expected to exceed 100%, and given that the completion of the proposed acquisition will result in a change in control of the Company, the proposed acquisition may be classified as a “Very Substantial Acquisition” or “Reverse Takeover” transaction as defined in Chapter 10 of the Listing Manual.  (Closing price: S$0.123, +0.8%)

Global Invacom Group Ltd provided a profit warning and expects to report a loss on the Group’s results for FY12. The Group has incurred expenses and other costs related to rectification of quality issues related to manufacturing of its satellite communications products. It is also expected to recognise a non-cash, non-recurring write-off of goodwill arising from the reverse takeover which was completed in the year under review. Further details of the Group’s performance will be disclosed when the Company announces its full year results in due course. (Closing price: S$0.215, unchanged)

Kreuz Holdings Ltd announced that a wholly owned subsidiary of the Company, Kreuz Subsea Marine Pte Ltd (the “Purchaser”), has entered into a conditional shipbuilding agreement with a shipbuilder based in the People’s Republic of China to construct and sell a vessel to the Purchaser for an aggregate consideration of US$113,650,000. As the terms of the Shipbuilding Agreement are not less favourable to the Company than the terms of the Acquisition Mandate set out in the 3 October 2012 extraordinary general meeting, the Shipbuilding Agreement and the Proposed Acquisition has been approved by the Shareholders pursuant to the Acquisition Mandate. (Closing price: S$0.460, unchanged)

Cache Logistics Trust made an announcement for the proposed acquisition of the property known as Precise Two, located at 15 Gul Way, Singapore 629193, for a total cost of approximately S$57.3 million from Precise Development Pte. Ltd. (“PDPL”). Pursuant to the Master Lease Agreement, PDPL will lease the whole of Precise Two for a term of six years with an option to renew for an additional six years. Following completion of the acquisition expected in April 2013, Cache will increase its investment property base by 5.7% to S$1,027.0 million (Closing price: S$1.275, +0.4%)

Enviro-Hub Holdings Ltd made an announcement in relation to the proposed disposal of the Company’s entire shareholding interest in Cimelia Resource Recovery Pte. Ltd. (“Cimelia”), a wholly-owned subsidiary of the Company, to Cerebra Integrated Technologies Limited for an aggregate consideration of US$20.0 million. The purchase price for the proposed disposal is significantly higher than each of the net tangible asset value and book value of Cimelia as at 30 September 2012, being the date of the latest announced unaudited financial statements of the Group for the financial period ended 30 September 2012. (Closing price: S$0.096, -3.0%)

Source: PhillipCapital Research - 07 Feb 2013