Morning Market Commentary

- STI: +0.40% to 3308.9                                   - SET: +0.95% to 1546.6
- JCI: +0.70% to 4634.5                                   - KLCI: -0.11% to 1613.3
- HSCEI: +1.37% to 11683                              - Hang Seng: +0.71% to 23307.4
- Nikkei 225:-0.45% to 11416.8                      - ASX200: +0.32% to 3366.0
- India NIFTY: +0.06% to 5493.1                     - S&P500: -1.24% to 1512.0

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

The STI is likely to pause today, possibly pulling back to its 10dma support level on account of the following:

As of yesterday's close, a 'doji' was formed, signalling market's indecision with regard to the way forward. Thus, markets are likely to take cue from Jan FOMC minutes (released yesterday) which was slightly more dovish than the preceding month's.

Parsing through the Jan FOMC minutes, the main key takeaway is large-scale asset purchases (LSAPs) to the tune of US$85bn/mth might be scaled back or even halted before a substantial improvement in the labor market (i.e. before reaching 6.5% unemployment target. As guided in our morning commentary as well as strategy reports, the Fed is basically trying to avoid a disorderly exit strategy from LSAPs en route to normalisation.

What does a premature scale back/termination of LSAPs mean for asset strategy:

- OW equities, MW fixed income. Well, recall we have guided that fixed income (particularly Treasuries) have low reward to risk ratio. Now, the rotation from fixed income to equities might gain momentum. While the withdrawal of aggressive monetary easing might remove the upward bias on equity prices, we reckon that corporate earnings could still be buoyed by a global cyclical upturn.
- Positive for USD and negative for Gold.

So in short, any pull back in equity prices (as markets digest the impact of Jan FOMC minutes) offer an attractive point of entry to accumulate our OWs on China, Hong Kong, Singapore, Thailand and Philippines.

For the STI, 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.

HSCEI and HSI closed within their Bollinger bands, relieving some selling pressure as positive sentiment in the US on Tues lifted equities during Wed Asian trading session.

But the Hang Seng Index (HSI) could see some weakness in the near term.
(i) The HSI bears have not given up yet. Yesterday’s ‘dragonfly doji’ suggest that bears dominated and pushed prices lower during the trading session. But bulls wrest control by the close of session to drive prices back to the opening level and days high. ‘
(ii) Furthermore, 5th Feb bearish breakaway gap to the downside has yet to be filled, portending further downside in the near term.
Selling pressure might intensify if the HSI decisively breaks below its 50dma support level.

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, housing starts declined 8.5% to 890,000 saar in Jan, reversing from a 15.7% surge in Dec. Recall 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 Japan, merchandise trade balance contracted for a record seventh consecutive month, registering a monthly deficit of 1.6 trillion yen in Jan - the sharpest decline since data was first compiled. While exports rose y-y, imports (particularly energy imports) ballooned.

In Thailand, the central bank stood pat in February –consistent with our expectations and what we have guided in this Mon morning webinar. We expect the central bank (BoT) to continue to stand pat, maintaining the benchmark one-day bond repurchase rate at 2.75% in view of a resilient domestic demand as well as an improving global economy.

In Malaysia, GDP growth accelerated 6.4% y-y in 4q12. For the whole of 2012, the economy grew by 5.6% - the upper limit of the central bank’s target range. Inflation edged up marginally from 1.2% y-y in Dec to 1.3% in Jan. As we have guided in our Asean Macro Strategy report, there are still upside risks to the Malaysia inflation outlook which is largely domestically driven especially if subsidies for food (eg. flour, sugar, cooking oil) and fuel (diesel, petrol) –major drivers of headline inflation – gets scaled back after the 13th General Elections.

Regional Market Focus

Singapore

• The benchmark STI closed marginally higher to 3,308.89 (+0.40%). The 6.9bn shares traded were worth S$1.9bn in value.
• The STI have returned +4.6% YTD with the best performing stocks being STE (+12.3%), Wilmar (+12.0%), HK Land (+11.9%) and SGX (+11.8%). The worst performing STI component this year is City Development (-12.2%), largely due to poor stock performance following the announcement of property cooling measures earlier in the year. Our Top picks for the year have all outperformed the STI with Pan United (+24.5%) being the top performer, followed by SIAEC (+10.7%) and Capitaland (+8.4%).
• 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 built on their gains on Wed as the Bank of Thailand’s Monetary Policy Committee left its policy interest rate unchanged at 2.75% in line with market expectations. Bank shares outperformed the market while selling continued in energy counters but selective plays lent support to the market’s gains.
• The composite SET index extended its rally to hit a new 18-year peak on Wed but foreign investors seemed to be on the selling rather than buying side in recent sessions. Institutions continued to play a key role in driving the market higher as buying orders from the so-called trigger funds gave a periodic boost to the market. However, squeezed trigger targets for the recently launched target funds may reflect the likely increase in market volatility as a consequence of fund profit taking/liquidation. Following the end of the Bank of Thailand’s policy meeting, we believe the market is likely to trade sideways in ranges awaiting fresh trading cues. For the meantime, we see no positive catalysts for the market in sight especially after minutes from the Federal Reserve’s most recent meeting suggested the US central bank may slow or stop buying bonds sooner than expected before the pickup in hiring it was intended to deliver. The Fed’s minutes were negative for liquidity in the global markets as witnessed by massive profit-taking in commodities markets. For this reason, investors should be watch out for possible profit taking in equities to follow.
• For short-term strategy, we continue to advise investors to look for good earnings and dividend plays.
• Today we peg resistance for the composite SET index at 1550-1555 and support at 1543-1536.

Indonesia

• Most Indonesian stocks rose on Wednesday (20/02), as stock indexes in Asia surged on improved economic data from Europe and merger-and acquisition speculation in the US. The Jakarta Composite Index (JCI) gained 32.389 points, or 0.70%, to close at 4,634.451. The climb was supported by seven of the 9 major sectors, led by construction, property and real estate sector with 3.02%-gain, agriculture sector with 1.23%-advance, and basic industry with 1.22%-climb. Most of the blue-chip stocks also rose on Wednesday. LQ45 – the index trailing Indonesia’s blue-chip stocks – rose 4.326 points, or 0.55%, at 790.995, with 25 of its 45 components climbed. More than 150 shares advanced, 85 shares declined, and 228 shares stayed unchanged Wednesday on the Indonesia Stock Exchange, where volume on the regular board topped 8.1 billion shares valued at IDR 5.66 trillion. Foreign investors accumulated net purchases worth over IDR 272 billion.
• The Jakarta Composite Index (JCI) may draw back in today’s sessions, following downbeat US stock markets overnight after the release of the Federal Reserve’s January meeting minutes. Minor support and resistance for the JCI will likely take place at 4,603 and 4,650 respectively.

Sri Lanka

• The Colombo bourse experienced another decline during the day which in turn caused both indices to drop for the third successive trading day. The market displayed a positive image during early hours of trade; however the favorable trend reversed prior to the day’s closure. The Benchmark ASPI index lost 6.94 points or 0.12% during the day compared to the previous trading day to close at 5,730.54 and the S&P SL20 Price index closed negative at 3224.85 after the loss of 13.72 points or 0.42%. A total turnover of LKR 763.5Mn was recorded during the day noting a decrease of 49.78% against the previous day. The best performers under the sectorial review were Bank Finance and Insurance and Beverage Food and Tobbacco contributing LKR 392Mn and LKR 197Mn respectively.
• Shares totaling up to 17.3Mn changed hands during the day noting a decrease of 39.24% against the prior trading day. As at the day’s closure, the Market Capitalization stood at LKR 2.2Tn recording a year to date gain of 1.57%.Price losers outpaced the price gainers by a ratio 95:77. Foreigners appeared to be bearish during the day resulting a net foreign outflow of LKR 224Mn the highest outflow after the 8th of February extending the year to date net foreign outflow to LKR 838.6Mn; moreover, this outflow was recorded after recording net foreign inflows for 2 consecutive trading days. The USD closed the day at a quoted price of LKR 128.83/-.

Australia

• The Australian share market on Wednesday closed at a fresh four-year high as gains by financial stocks offset falls by the big miners. At close, the benchmark S&P/ASX200 index had lifted 16.8 points or 0.33 per cent to 5,098.7.
• Today, the Australian market looks set to pull back after Wall Street fell on mixed US housing and inflation figures. The SFE Futures 200 is pointing downwards 59 points or 1.16 per cent to 5,014.
• In economic news on Thursday, the Australian Bureau of Statistics (ABS) is due to release average weekly time earnings (AWOTE) for the six months to November.
• In equities news, ASX, Insurance Australia Group, Paperlinx, Qantas Airways, Bega Cheese, Retail Food Group, Fairfax Media, Echo Entertainment, Insurance Australia Group and Village Roadshow are among the companies due to post first half results. AMP and Iluka Resources are expected to announce full year results.

Hong Kong

• Local stocks rallied, following the rebound in China Market. The HSI and HSCEI rose 163 points and 157 points to 23307 and 11683 respectively. Market volume was 65.590 billion.
• We believe the market is going to consolidate, as some of the technical indicators are showing the HSI is overbrought, investors are suggested to stand on the sideline and wait for a clear trading signal.
• Technically, the HSI is expected to gain a support from 23,000 level while major resistance will be 23,800 level.

Morning Note

Company Highlights

Enviro-Hub Holdings Ltd. announced that the business environment continued to be difficult in Q42012 and as such, the Group expects to report a loss for Q42012 and FY2012. (Closing price: S$0.108, +13.7%)

Koh Brothers said that it had secured a S$99.8 million contract from PUB, which commenced on Feb 18. Under the contract, the construction, property development and specialist engineering solutions provider is carrying out improvement works to the existing trapezoidal canal and crossings at the Bukit Timah First Diversion Canal. The contract lasts for three years. (Closing price: S$0.335, -2.9%)

Source: PhillipCapital Research - 21 Feb 2013