Morning Market Commentary

- STI: +0.23% to 3295.8                                 - SET: +0.58% to 1532.1
- JCI: -0.22% to 4602.1                                  - KLCI: -0.36% to 1615.1
- HSCEI: -1.79% to 11525.7                          - Hang Seng: -1.02% to 23143.9
- Nikkei 225: -0.31% to 11372.3                   - ASX200: +0.98% to 3355.2
- India NIFTY: +0.70% to 5939.7                   - S&P500: +0.73% to 1530.9

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

The STI is likely to inch up higher today as positive sentiment in US markets overnight is likely to spill over to Asian markets today. 3319 (52-week high) will be the immediate resistance level, followed by 3400 psychological resistance level and subsequently 3800 major key resistance. Near-term support at 3250 level.

But there will be speed bumps ahead for the STI over the next few days on account of the following:
(i)         Weaker-than-expected earnings announcement. After SG market closed yesterday evening, SG-listed companies continued to issue profit warnings for Q4 and FY 2012 (Details can be found under the 'company highlights' section in our morning note today).
(ii)        Italian macro risks ahead of the Italian elections this weekend Feb 24-25. A governing majority by Berlusconi (though not our base case scenario) will cast doubt on Italian reform commitments.
(iii)       Political gridlock in negotiations over the impending 1st March sequestration in the US.

For the Nikkei 225, it might be an opportune time to enter tactical trading positions ahead of the upcoming nomination of the next BoJ Governor (to be announced by next week). Markets view candidates Iwata as the most dovish, followed by Kuroda and Muto.

Trading Idea: So with a short-term trading horizon, clients can consider a tactical long position if Iwata is appointed as that will a big negative for the JPY (Japanese Yen) and consequently likely a positive for the Nikkei. On the other end of the spectrum, clients can consider a tactical short position –using CFDs- if Muto is appointed as that might disappoint some Nikkei bulls.

Regardless of who the next BoJ Governor will be, do note that the Nikkei might pull back from its recent high as there is a significant probability that markets might ‘sell the fact’ once the announcement is made. Nonetheless, on a medium term investment horizon, we are cautiously optimistic about Japan equities on account of the factors reiterated most recently on this page yesterday (Feb 19).

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

Selling pressure is likely to intensify for the HSCEI as well as HSI if the indices continue to hug their respective lower bollinger band which they already did as of yesterday’s close. Yesterday’s dismal performance in the CSI 300, HSCEI as well as HSI–particularly the property and construction counters- was mainly due to concerns that the government might introduce additional property tightening measures to curb a possible rebound in property prices.

The S&P 500 continue to surge to new cyclical high as the bulls led the charge from the opening bell till the close. At this juncture, we reckon 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 -in the immediate near term- owing to lingering uncertainties in view 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 -which has yet to be priced into this 'complacent' market.

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

Macro Data:

In the US, the NAHB survey headline slipped down 1 pt m-m to 46 in Feb. Though the reading was weaker-than-expected, we reckon that it is consistent with Dec's decline in new home sales, thus a housing inventory bubble of sorts is actually avoided.

In Germany, the ZEW headline investor sentiment index rose from 31.5 to 48.2 (highest level since Apr 2010), suggesting that most investors expect economic conditions to improve over the next 6 months.

Regional Market Focus

Singapore
 

• The benchmark STI was little changed at 3,295.77 (+0.23%). The 4.9bn shares were traded with value worth S$1.6bn. 
• We see little catalyst for the Singapore Market in the near term and believe that a strategy of sticking to stock specific ideas would be more rewarding. As guided in our recent report, ST Engineering should continue to trade higher on positives from a major contract win. NOL is due to report their 4QFY12 results on Fri and we expect a significant turnaround from the huge losses of S$320mn a year ago.
• 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 continued to set new 18-year highs driven by better-than-expected economic growth but sporadic bouts of profit taking also kicked in along the way while investors were awaiting the outcome of the Bank of Thailand’s Monetary Policy Committee meeting.
• Thai stocks are likely to remain choppy in range at least in the morning session ahead of the outcome of the Bank of Thailand’s Monetary Policy Committee meeting, which will be announced in the afternoon. We believe the market will likely continue its sideways-to-up trend on expectations that the MPC will stay pat on policy interest rate as continued strong economic growth and the likely acceleration of inflation fueled by higher energy prices undercut the case for lower interest rates. However, any surprise rate cut in an attempt to stem the rise of the baht may hurt sentiment in the market in terms of FX rate and a bow to political pressure, a move that could trigger fund outflows but there are some companies that stand to benefit from a weaker baht or a rate cut including the likes of export, hire purchase and housing businesses. Overall we expect the composite SET index to trade in a range of 1527-1543 today.   
• For short-term strategy, investors may raise equity holdings to up to 75% of the portfolio as long as the composite SET index sustains above 1500 but more caution should be exercised in trading as volatility is set to rise along the way. We also continue to advise investors to look for good earnings and dividend plays.
• Resistance on the main index is pegged at 1537-1543 and support at 1527-1521 today.

Indonesia
 

• The Jakarta Composite Index (JCI) retreated on Tuesday (19/02), amidst choppy closes on Asia stock markets, as investors were struggling to rediscover the bullish tone that recently has pushed many regional indices to multiyear highs. The JCI shed 9.984 points, or 0.22%, to close at 4,602.062. The decline included seven of the 9 major industry groups, with index of agriculture sector plunged 1.59%, basic industry fell 0.82%, and trade, investment and services sector lost 0.37%. Most of the blue-chip stocks also declined. The LQ45 index - that measures the blue-chip shares - trimmed 2.539 points, or 0.32%, at 786.669, with 27 of its 45 components ended in negative territory. For every share that advanced, almost two declined Tuesday on the Indonesia Stock Exchange, where volume jumped significantly to 12.26 billion shares valued at IDR 5.22 trillion on the regular board. Shares of Bakrie Group’s companies mostly ranked within top 10-volume on Tuesday. Foreign investors accumulated net purchases worth IDR 722.33 billion in total.
• Trades at the Indonesia Stock Exchange will likely be bullish today, as positive leads from US stock markets overnight may raise sentiments in Asia today. The Jakarta Composite Index (JCI) looked set to move higher with support and resistance at 4,564 and 4,638 respectively.

Sri Lanka
 

• The Colombo Bourse continued the previous day’s adverse momentum resulting in both indices, to retain within the negative territory for the second consecutive trading day as a result of heavy selling pressure which was quite evident throughout the trading day. The Benchmark ASPI index dipped further by 37.11 points or 0.64% during the day compared to the previous trading day recording its lowest value after the 10th of January to close at 5737.48 and the S&P SL20 Price index dropped 10.71 points or 0.33% to close the day at 3238.57 recording the lowest value in 8 successive trading days. The Turnover for the day which amounted to LKR 1.52Bn largely backed by crossings worth LKR 995Mn (65.42% of the turnover) was an increase of 74.78% compared to the previous trading day. During the day, Bank Finance and Insurance and Diversified Holdings topped the list under the sectorial review by contributing LKR 1.18Bn and LKR 223Mn respectively.
• Shares totaling up to 28.4Mn changed hands during the day noting a decrease of 21% against the previous trading day. The Market Capitalization as at the day’s closure stood at LKR 2.2Tn recording a year to date gain of 1.69% .  Foreigners appeared to be bullish for the second consecutive day recording a net foreign inflow of LKR 301Mn which was the highest inflow recorded in 3 weeks  ,reducing the year to date net foreign outflow to LKR 614.6Mn.As at the day’s closure the USD closed at a Quoted price of LKR 128.53/-.

Australia
 

• The Australian share market on Tuesday closed at its highest level in more than four years, with reporting season delivering mostly positive results. At the close, the benchmark S&P/ASX200 index had lifted 18.5 points, or 0.37 per cent, to 5,081.
• Today, the local market looks set to open higher following strong performances on world markets propelled by news of soaring investor sentiment in Eurozone powerhouse Germany. The SFE Futures 200 is pointing upwards 12 points or 0.23 per cent to 5,072.
• In economic news on Wednesday, the Australian Bureau of Statistics (ABS) releases the wage price index for December, while Westpac-Melbourne Institute Leading Indexes of Economic Activity is also due out.
• In equities news, Suncorp Group, Super Retail Group, Seven West Media, Seek, The Reject Shop, Toll Holdings, Aurizon Holdings, BHP Billiton and Fortescue Metals Group are among the companies expected to post first half results. Woodside Petroleum is due to release its full year results, while Aristocrat Leisure has its annual general meeting scheduled.

Hong Kong
 

• Stock markets in Hong Kong declined for a second straight day on Tuesday, weighed down by real estate and financials, as investors grew concerned that both Beijing and Hong Kong would launch more curbs to cool rising property prices.
• The Hang Seng Index closed down 1 percent at 23,143.91. The China Enterprises Index of the top Chinese listings in Hong Kong shed 1.8 percent.
• The Shanghai Composite Index ended down 1.6 percent at 2,382.91. The CSI300 of the top Shanghai and Shenzhen A-share listings shed 1.9 percent. Both suffered their worst loss in more than a month.
• "The overall market sentiment has turned a little bit cautious," said Alex Wong, director of asset management at Ample Finance Group, adding that investors in both on- and offshore markets were concerned about policy risks. (Source: Reuters)

Morning Note

Company Highlights

CapitaLand is making a S$3.2 billion joint acquisition and development of one of the five flagship zones in Johor's Iskandar Malaysia its first direct large-scale township investment and development in the country. The real estate company said on Tuesday that its wholly owned subsidiary, CapitaLand Malaysia Pte Ltd, had inked a heads of agreement with Iskandar Waterfront Sdn Bhd (IWSB) and Temasek to jointly acquire and develop parcels of land in Danga Bay. CapitaLand Malaysia, IWSB and Temasek will hold 51 per cent, 40 per cent and 9 per cent stakes respectively in the joint venture. The joint venture will acquire 3.1 million square feet of freehold net land in Danga Bay for a purchase price of RM811 million (S$324 million). (Closing price: S$3.950, +1.0%)

Changjiang Fertilizer Holdings Limited wishes to provide profit guidance on the Group’s results for the fourth quarter (“4QFY2012”) ended 31 December 2012. As a result of lower demand of our products, the Group expects to report a significantly lower revenue and a loss in its unaudited fourth quarterly results of the Group for the three months ended 31 December 2012, as compared to the corresponding period in 2011. (Closing price: S$0.149, - 6.9%)

Changtian Plastic & Chemical Limited deems it appropriate to announce that the Group is expected to report a loss for the fourth quarter ended 31 December 2012. The fourth quarter result is expected to be a loss due to an impairment charge recorded for the Group’s “Property, plant and equipment” and “Inventories”. The impairment loss will be reflected as an expense in the income statement, thereby contributing to a loss for the fourth quarter ended and full year ended 31 December 2012. The impairment loss is a non-cash flow item and is not expected to have any adverse impact on the operations of the Group. (Closing price: S$0.061,- )

R H Energy Ltd expects to report a net loss for  FY2012 due mainly to lower revenue from the absence of large equipment integration projects completed and delivered, higher staff related expenses and increased business development  expenses in exploring new markets and sourcing new products incurred in the first nine months ended 30 September 2012 and further losses in the fourth quarter ended 31 December 2012, mainly due to the written off the cost of drilling the exploratory well in one of the oil concession rights in Alberta, Canada where further development is not economically viable presently and impairment loss on the fair value of the oil concession rights. (Closing price: S$0.167, +3.1% )

Sinotel said PwC had advised it to set up a formal purchasing committee to oversee significant procurements; this will ensure that controls over the selection of vendors are adhered to.PwC recommended that the purchasing committee comprise employees holding senior positions in the administration, finance and purchasing departments of the company's operating subsidiaries. Sinotel revealed last April that three of its employees had cheated it of 105.4 million yuan (US$16.8 million) through unauthorised fictitious purchases. (Closing price: S$0.118, -% )

Zhongmin Baihui Retail Group Ltd. deems it appropriate to issue this profit guidance in respect of the financial results of the Company and its subsidiaries (“Group”). The Board expects the Group to report a lower profit after taxation in FY2012 as compared to FY2011. This was mainly attributable to losses incurred at  the Nanzhan Store as it had only opened for operations in September 2012.  (Closing price: S$-, -% )

Source: PhillipCapital Research - 20 Feb 2013