Morning Market Commentary

- STI: -0.01% to 3269.5                                 - SET: -0.13% to 1539.6
- JCI: +0.33% to 4811.6                                - KLCI: -0.01% to 1637.4
- HSCEI: -0.81% to 11344.2                         - Hang Seng: -0.61% to 22880.2
- Nikkei 225: +0.41% to 11606.4                 - ASX200: +0.27% to 3358.3
- India NIFTY: +0.47% to 5719.7                  - S&P500: +0.23% to 1518.2

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

The sequestration has kicked in on 1st March as political gridlock persisted with Congress unable to strike a bipartisan and more modest deficit reduction deal before the deadline. This means the US$85 billion "sequester" –automatic and across-the-board budget cuts- during the remainder of FY13 (March through Sept) will take effect, weighing mostly on 2H13 growth and shaving off around 0.6%pt from calendar year 2013 economic growth.

Still we are cautiously optimistic that Congress might dampen the fiscal drag to some extent possibly via legislative changes as well as emergency appropriations. Thus, on balance, we are revising downwards our real GDP growth for the US by 0.5%-pt to 1.7% for the whole of 2013. Downside risk to our US 2013 GDP forecast is a sharper-than-expected fiscal drag. On the other hand, a strong-than-expected capex rebound would pose some upsides for growth.

US equity indices  shrugged off these budget cuts and marched higher on upbeat factory data and buoyant consumer sentiment. While both the S&P 500 and DJIA are just a whisker away from their record highs, we reckon there is a slightly less than even chance of them clearing above their strong technical resistance levels of 1575 (triple top) and 14200 (double top) respectively at this juncture.

Apart from the sequestration, there is likely a lagged adverse effect of the payroll tax hikes on household consumption. While recent macro data suggests US consumers -in the face of the payroll tax hike- saved less to keep spending up, the question is whether consumers will continue to dig into savings? Households could have saved quite a fair bit of early dividend payouts distributed last Dec, indicating a possible one-off payback effect. Thus, we will need to seek guidance from the upcoming Feb and March retail sales as well as household consumption/savings prints.
 
Another date to pencil in for the US is 27th March where a possible partial government shutdown is likely if no bill is passed to extend routine government funding for federal program/agencies.

STI might take cue from US markets’ reaction to the sequestration and reaction to risk events for the week: (i) developments on the political impasse in Italy, (ii) China's 5th March National People’s Congress where the government's 2013 economic targets will be unveiled. Do look out for announcements of reforms as well as possible property stabilisation blueprint.

Incipient signs of a turnaround in the HSI based on improvements in MACD and RSI. Strong support at 22,000. Resistance region at 23,000 – 25,000.

For the Nikkei, while a a renewed rally in USDJPY and consequently Nikkei might ensue in the near term, markets might eventually “sell the fact”. Kuroda -BoJ Governor nominee- will make his official comments during the upper and lower house hearings next week. Thus, that might provide a catalyst for USDJPY and Nikkei to breakout again.

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

Macro Data:

In US, manufacturing activity continued to expand. Specifically, the ISM PMI climbed 1.1pt m-m to 54.2 in Feb - highest level in more than 1.5 years. The Uni of Michigan consumer sentiment headline index rose to 77.6 in the final Feb print, which translate to a 1.3pt upward revision over the prelim Feb report and 3.8pt m-m gain.   On the household income front, disposable personal income declined 4.0% m-m sa in Jan, reversing from a 2.7% gain in the preceding month, owing to higher taxes. Nonetheless, consumer spending continued to increase 0.2% as the savings rate fell to 2.4% in Jan (from 6.4% in Dec).

In Indonesia, inflation accelerated from 4.57% in Jan to 5.31% in Feb on account of higher food prices. On the trade front, exports declined 1.24% y-y in Jan while imports rose 6.82% in Jan. 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.

In Thailand, inflation eased for the second consecutive month from 3.39% in Jan to 3.23% in Feb on account of a fall in food prices as well as distribution of state subsidies. 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 Euro zone, manufacturing PMI reported 47.9 in Feb, indicating a contraction in the region’s manufacturing sector. A separate report shows that the unemployment rate in the region climbed to 11.9% in Jan, market the highest since the data series started in 1995. Euro zone economy is still stuck in recession, though there has been improvement in Jan and Feb confidence indices.
In UK, manufacturing PMI unexpectedly fell to 47.9 in Feb, indicating a contraction in the nation’s manufacturing sector, after a revised 50.5 reading in Jan.

In China, non-manufacturing PMI fell to 54.5 in Feb, from 56.2 in Jan, indicating a slower expansion in the nation’s services industry. The nation’s manufacturing PMI fell to 50.1 in Feb, from 50.4 in Jan, marking the weakest expansion in manufacturing sector in the past 5 months. Although the slowdown in expansion adds to concerns the nation’s economic recovery is losing steam, the lower than expected statistics could be subject to holiday distortion due to the week- long Chinese New Year holiday. We maintain our view China’s economic growth will mildly recover with a whole year growth of 8.0% y-y in 2013.

Regional Market Focus

Singapore
 

• The benchmark STI was little changed at 3,269.50 (-0.01%). The 6.7bn shares traded were worth S$1.8bn in value.  
• Following lower than expected earnings, Golden Agri was the worst performing stock (-3.1%) in the STI on Friday. However, our positive view on the stock remains with our analyst rating the stock as Accumulate and TP of S$0.685.
• Top picks for the year are Pan United (Buy, TP: S$1.21), SIAEC (Buy, TP: S$6.10) & Capitaland (Accumulate, TP: S$4.05). 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. 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 extended its rebound early in the session last Fri after foreign buying returned to the market in a big way in the previous session but the main index later gave up earlier gains amid uncertainty over US sequestration spending cuts before it finished the session in negative territory.
• Even though sequestration took effect last Fri after US President Barack Obama and congressional leaders failed to reach a compromise to avert the cuts, the stock market reacted little to the impact of government spending cuts as it appeared to have already priced in the failure by legislators to reach an agreement in contract to the oil market, which tumbled on sequester concerns. Negotiations would however likely continue in the US though sequester went into effect. Under this circumstance, we believe the choppy, range-bound trade may continue in the Thai stock market today. Although a rebound is likely on the back of the continued return of heavy foreign buying in both Thai equities and futures, we think the upside would remain limited after the end of corporate earnings season amid global economic uncertainty caused by political deadlock in Europe and the US and China’s stricter measures to cool its property market. Overall we expect the composite SET index to trade in a range of 1530-1545 today.
• In the near term, investors could continue to selectively buy stocks with focus on dividend plays.
• Today we peg resistance for the SET index at 1545-1549 and support at 1530-1518.

Indonesia
 

• A significant number of stocks listed on the Indonesia Stock Exchange rallied on Friday (01/03), bringing the Jakarta Composite Index (JCI) to a new record high--4,817.914. The JCI advanced 15.824 points, or 0.33%, to close at 4,811.613. Basic industry shares led gains that included all nine major industry groups. The basic industry sector index gained 2.50%. Miscellaneous sector followed with 1.54%-gain and infrastructure sector added 1.26%. Many of the blue-chip stocks also rose, with the LQ45 index that measures these stocks climbed 3.227 points, or 0.39%, at 827.971, as 22 of its 45 components rose. 106 shares advanced, 107 shares fell, and 110 shares stayed unchanged Friday on the Indonesia Stock Exchange, where 6.09 billion shares worth IDR 6.02 trillion (USD 622.16 million) traded on the regular board. Foreign investors posted net purchases worth IDR 2141.53 billion (USD 221.3 million).
• Composite index of Indonesian stocks will likely to continue climbing today, as gains on US stock markets on Friday may lift sentiments in Asia today. We estimate the Jakarta Composite Index (JCI) will be traded higher, with support and resistance at 4,763 and 4,842 respectively.

Sri Lanka
 

• The Colombo bourse ended the last trading day of the week on a positive note and both indices re-entered in to the green territory. The Benchmark ASPI closed positive, gaining 16.79 points to close at 5,652.69 (0.30%) while, the S&P SL20 Price Index ended at 3,206.85 (0.39%) gaining 12.46 points. The daily turnover totaled up to LKR 674Mn noting a decrease of 92.20% against the previous trading day. Under the sectorial summary Bank Finance Insurance and Manufacturing recorded LKR 489Mn and LKR 90Mn respectively while topping the list. During the day, Shares totaling up to 16.5Mn changed hands recording a decrease of 11.23% against the previous trading day and The Price gainers outperformed the price losers by a ratio of 114:76.
• The Colombo bourse experienced another decline experiencing a weighty negative note for the third consecutive week mainly a result of the sluggish participation of the investors throughout the week despite the narrow upturn gained by Friday. Benchmark ASPI index dipped 82.92 points or 1.45% during the week and the S&P SL20 index dropped 16.43 points or 0.51%.The turnover for the week totaled up to LKR 3.4Bn, a 12.61% drop compared to the previous week. During the week, a total of 96Mn shares changed hands reflecting a decrease of 11.23% compared to the previous week. Foreign sales of LKR 1.72Bn outpaced the foreign purchases of LKR 1.81Bn resulting in net outflow of LKR 91.3Mn during the week. As at the week’s closure, the total market capitalization stood at LKR 2.17Tn, recording a year to date gain of 0.19% and the market PER(X) and PBV(X) stood at 15.28 and 2.08 respectively. The USD closed the week at a quoted price of LKR 129.07/-.

Australia
 

• The Australian share market on Friday closed almost half a per cent lower as the major resources companies dragged the index down. At the close, the benchmark S&P/ASX200 index was 18 points, or 0.35 per cent, lower to 5,086.1.
• Today, the Australian market looks set to open slightly lower despite Wall Street reaching a five-year high as it shrugged off the risks to the world's largest economy of impending federal spending cuts and bid up equities. The SFE Futures 200 is pointing downwards 5 points or 0.09 per cent lower to 5,069.
• In economic news on Monday, the Australian Bureau of Statistics releases its business indicators for the December quarter and the building approvals for January data. The TD Securities-Melbourne Institute inflation gauge for February is due out as is the ANZ job advertisements series for month just ended, the Dun and Bradstreet business expectations survey and the NAB quarterly online retail sales index.
• No major equities news is expected.

Hong Kong
 

• Local stocks dropped. The HSI and HSCEI dropped 140 points and 92 points to 22880 and 11344 respectively. Market volume was 77.693 billion.
• We believe the market is going to consolidate, as some of the technical indicators is showing the HSI is overbuying, investors are suggested to stand on sideline and wait for a clear trading signal.
• Technically, the HSI is expected to gain a support from 22500 level, major resistance will be 23000 level.

Morning Note

Company Highlights

Auric Pacific Group Limited announced that it has entered into a share purchase agreement for the sale of all of Charm Fit’s redeemable preference shares (“RPS”) of a par value of S$0.01 each (the “Relevant RPS”) in the share capital of Auric Pacific Real Estate Fund (the “Fund”), representing 60.0% of all the issued and outstanding RPS of the Fund  (the “Sale”). The consideration for the Sale and the sale of the One Ordinary Share is HK$130,752,647.08 (the “Consideration”), being approximately 60.0% of the net asset value of the Fund as at Completion and being also approximately 60.0% of the outstanding principal amount of the Mezzanine Loan, the sole investment of the Fund since its incorporation. (Closing price: S$1.31, -0.758%)

Source: PhillipCapital Research - 04 Mar 2013