Morning Market Commentary

- STI: +0.94% to 3301.0                    - SET: +1.69% to 1514.1
- JCI: +0.51% to 4571.6                    - KLCI: +0.45% to 1631.2
- HSCEI: -0.28% to 11649.8             - Hang Seng: +0.16% to 23215.2
- Nikkei 225: -1.04% to 11251.4      - ASX200: +0.41% to 3344.6
- India NIFTY: +0.18% to 5933.0      - S&P500: +0.06% to 1520.3

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

The S&P500 and DJIA ended broadly flat overnight but are still hovering around their respective cyclical highs. At this juncture, there is a slightly less than even chance of the S&P 500 and DJIA clearing above their strong technical resistance levels of 1575 (triple top) and 14200 (double top) respectively owing to a confluence of macro risk events ahead (such as a disorderly sequestration) as well as the likely lagged adverse effect of the payroll tax hikes on consumption (retail sales could be hit harder in Feb/Mar) -which has yet to be priced into this 'complacent' market.

Meanwhile, MacDonald's (MCD:NYSE) gapped down below its 10dma support level, on account of a possible increase in federal minimum wage (to $9/hr) floated by Obama in his Tuesday's State of Union address as well as possibly weaker consumer discretionary spending ahead, amongst other factors.

Recall we posited that 2013 is likely a year for stocks and maintain OW on CN, HK, SG, TH and PH in our Global Macro Asset Strategy report. Let’s review our OW calls thus far.

The STI gapped up above the psychological 3300 mark, bouncing off the 10dma support level with a bullish candlestick. CFD traders can consider long positions in Straits Times Index SGD5 CFD (STI) and Singapore Index SGD20 CFD (SMSCI), especially if the bulls continue to overwhelm the bears and leave open Wednesday's breakaway gap (formed to the upside). Near-term support at 3250 support level. 3400 will be the immediate psychological resistance level and the next major key resistance will be 3800 (attained in 2007).

Thailand and Philippines-which we have been OW since last year- have continued to fare quite well with the Thailand SET Index and the Philippine Stock Exchange Index still in a secular uptrend. In particular, MSCI Philippines (+11.1%) has outperformed the MSCI World (+5.6%) and MSCI SEA (+1.9%) ytd. Specifically, Philippines is in a goldilocks situation - resilient domestic demand (public private partnership) and in the middle of an upturn in the investment cycle driven by record-low interest rates as well as a slew of reforms, with benign inflation to boot.
Pullbacks in the H-shares China Enterprise Index (HSCEI) and the Hang Sang Index (HSI) offer an attractive point of entry to enter long/accumulate our OWs in China and Hong Kong (on account of compelling valuations) when trading resumes. While last Tuesday's breakaway gap (formed to the downside) has not been filled, the HSCEI and the HSI still enjoy strong support from their respective 50dma support levels.

The Nikkei 225 slipped but is still waddling along the 10dma support level. Note we expressed our optimism -albeit a cautious one- on the Nikkei 225 rally which we detailed on this note (7 Feb). Yesterday on this page, we cautioned the rally in USDJPY (i.e. weakness in Japanese Yen) might ease -albeit still in a distinct uptrend- especially ahead of Thurs G20 meetings on account of G7's clarification that it does not endorse a unilateral move in the Yen. This will likely weigh on the Nikkei and caused some jitteriness in the near term until there is greater clarification (and acceptance) of BoJ’s pace of aggressive monetary easing.

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

Macro Data:

In US, retail sales expanded 0.1% m-m in Jan, compared to a 0.5% increase in the preceding month. While Jan retail sales was broadly in line with expectations, we reckon that the likely lagged adverse effect of the payroll tax hikes could hit retail sales harder in Feb/Mar.

In EZ, industrial production gained 0.7% m-m in Dec, rebounding from the 0.7% contraction in the preceding month. This reinforces our view that the pace of economic contraction in the EZ is turning less negative (i.e. easing).

In Indonesia, the current account was in a deficit of $24.18bn for the whole of 2012 (2.7% GDP), reversing from a surplus of $1.7bn in the preceding year. Looking ahead, Bank Indonesia expects its current account to improve on account of a likely acceleration in exports as economic growth in the US and China gradually picks up. Recall BI stood pat in February (consistent with our expectations), maintaining the benchmark policy rate at a record low 5.75% for the 12th consecutive month. Nonetheless, we reckon there is scope for normalization in rates (ie. rate hikes), especially with upsides to inflation in view of possible fuel price hikes.

Regional Market Focus

Singapore

• The benchmark STI closed higher to 3,301.04 (+0.94%). 8.2bn shares were traded with value worth S$1.8bn.
• The stock of SingTel opened lower as profits declined by 8%y-y. Our analyst would provide a detailed analysis after the results briefing this morning.
• 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

• The composite SET index surprisingly rallied much more than expected on Wed on positive regional sentiment following US President Barack Obama’s State of the Union address, which largely focused on economic themes, the refusal by the SEC to impose new measures to curb excessive speculation in the stock market and the return of buying interest in big-cap energy, bank and telecom counters. 
• Yesterday’s stronger-than-expected rally pushed the Thai stock market back into rebound mode but we believe further gains will likely be limited and more sporadic bouts of pullbacks could be in store after yesterday’s sharp rise of up to 25 points while investors are looking to the Bank of Japan’s policy meeting and the G20 summit before the end of the week. Foreign investors yesterday turned net buyers of Thai shares but the buying amount remained small while institutions and proprietary accounts played a role as key market drivers. Under this circumstance, the extremely high level of volatility along the way could be in the cards. Today we expect the composite SET index to trade in a range of 1506-1520 points.
• For short-term strategy, we advise investors to look for good earnings and dividend plays.
• Resistance for the composite SET index is pegged at 1518-1527 and support at 1506-1499 today.

Indonesia

• Indonesian stocks closed mostly higher on Wednesday (13/02), as markets in Asia surged higher on positive earnings, supported by momentum from higher closes on US markets on Tuesday. The Jakarta Composite Index (JCI) rose 23.325 points, or 0.51%, to close at 4,571.568. The advance included all but one major industry groups, led by construction, property, and real estate sector that added 1.28%, consumer goods sector gained 1.24%, and basic industry sector climbed 0.83%. Infrastructure sector was the laggard, ended with 0.44%-decline. Blue-chip stocks also ended mostly higher, with the LQ45 index measuring them added 4.386 points, or 0.56%, at 784.914, with 27 of its 45 components rose. More than 135 shares advanced, 95 shares declined, and 239 shares remained unchanged Wednesday on the Indonesia Stock Exchange, where 5.15 billion shares worth IDR 4.42 trillion changed hands on the regular board. Foreign investors accumulated net purchases worth IDR 470.08 billion in total.
• Indonesian stocks might be due for a pause today, after a straight two-day rallies, as mixed closes on US markets may provide little leads to stock markets in Asia. We expect the Jakarta Composite Index to trade within 4,534 – 4,590 range today.

Sri Lanka

• The bourse ended on a negative note for the second consecutive trading day, resulting both the indices to record negative closures. This was mainly due to the inactive participations of the investors and dull sentiment pertained throughout the date. ASPI Index lost 9.09 points or 0.16% and closed at 5,827.02 and the S&P SL20 Index stood 3,257.14 dipping 0.84 points or 0.03%. The market capitalization as at the day’s closure was LKR 2.24Tn recording a year to date gain of 3.27%.
• The turnover for the day recorded LKR 608.5Mn, which is a 13.72% reduction compared to the previous trading day. Shares totaling up to 58Mn changed hands during the day; this was an increase of 169.45% compared to the previous trading day. The foreigners were bullish for the second consecutive trading day resulting a net foreign inflow of LKR 159Mn while, reducing the year to date net foreign outflow to LKR 1.1Bn. USD closed the day at a quoted price of LKR 127.97/-.

Australia

• On Wednesday, the Australian share market closed at its highest level since 2008 as bank stocks soared on a better than expected profit from Commonwealth Bank (CBA). At the close, the benchmark S&P/ASX200 index was 44.7 points or 0.9 per cent higher to 5,003.7.
• Today, the Australian market looks set to open flat after finishing above 5,000 on Wednesday and following gains on international bourses overnight.
• In equities news, Wesfarmers, Downer EDI, Paladin Energy, Dexus Property Group and Mirvac Group are expected to post first half results while SingTel (Optus) has its third quarter results release scheduled and Rio Tinto is due to announce full year results. Meanwhile, David Jones is expected to announce second quarter sales results.
• Locally, no major economic news is expected on Thursday.

Hong Kong

• Local stocks swung between gain and lost. The HSI and HSCEI rose 38 points and dropped 32 points to 23215 and 11649 respectively. Market volume was 65.742 billion.
• We believe the market is going to consolidate as some of the technical indicators are showing that the HSI is overbought. Investors are suggested to stand on the sideline and wait for a clear trading signal.

Morning Note

Company Highlights

Memtech International Ltd issued a profit warning that the Group expects to report a loss for the year ended 31 December 2012, due mainly to: (i) The significantly lower demand for mobile phone keypads; and (ii) The impairment charge on fixed assets pertaining to the touch screen operation. Further details regarding the Group’s financial performance will be made available on 20 February 2013 when the Group finalises and discloses its unaudited consolidated financial results for the year ended 31 December 2012.
(Closing price: S$0.077, -8.3%)

CSE Global Ltd announced a strategic acquisition of Tynemarch Holdings Limited and its subsidiary Tynemarch Systems Engineering Limited, a technology-led consultancy to the water and environmental management industries. Tynemarch’s business will provide a base for CSE (UK) Group to further expand its existing activities within the water and environmental management sectors. CSE (UK) annualised turnover exceeds 45 million and the acquisition of Tynemarch will increase this by a further 5%. (Closing price: S$0.835, -1.2%)

Great Group Holdings Ltd issued a profit warning that the group expects to report a loss for Q4 2012 and the full year ended 31 December 2012. The expected loss is largely attributable to i) lower revenues and gross margin resulting from weaker demand in Europe; and ii) impairment of the Group’s fixed assets as at 31 December 2012. More detailed information will be disclosed when the Group releases its Q4 2012 financial results on or before 28th February 2013. (Closing price: S$0.096, unchanged)

Goodland Group Ltd announced that its wholly owned subsidiary, Goodland Harvest Pte Ltd has exercised options for the acquisition of Hua Court property, at the purchase price of S$14,500,000. The costs for the acquisition and development will be financed through internal funds and/or bank borrowings of the Group. The acquisition is not expected to have any material impact on the earnings per share and net tangible assets per share of the Group for the financial year ending 30 September 2013. (Closing price: S$0.430, -2.3%)

Source: PhillipCapital Research - 14 Feb 2013