Morning Market Commentary

- STI: +0.20% to 3298.5                                  - SET: +0.10% to 1560.98
- JCI: +0.49% to 4848.3                                  - KLCI: -0.06% to 1650.93
- HSCEI: -0.42% to 11311.5                           - Hang Seng: -0.03% to 22771.4
- Nikkei 225: +0.30% to 11968.1                   - ASX200: +0.17% to 3393.2
- India NIFTY: +0.77% to 5863.3                    - S&P500: +0.18% to 1544.3

SMRT – Expect a spike in staff cost from wage review
By Derrick Heng, Transport Analyst

SMRT Corp (Sell, TP: S$1.41) announced a wage review for all Non-Executive staff, excluding its Bus Captains who received an increment previously. The revision will take effect from 1 March 2013 with incremental cost impact of approximately S$10mn (Base Salary revision: S$5mn; One-off: S$5mn) for 4QFY13E. Considering the recurring impact of S$5mn for one month, annualized impact should be in the range of S$60mn. However, management advised that the cost of revision has not taken into account possible credits from the recently proposed Wage Credit Scheme and other variable items. Hence, actual cost impact should be lower. More details would be available at the upcoming results briefing.

To put things in perspective, SMRT’s wage bill for 3QFY13 was S$98mn and a quarterly recurring impact of S$15mn would imply a 15% upwards revision to its wage bill. However, weexpect actual cost impact to be significantly lower after taking into account the Wage Credit Scheme and other variable items. We have kept our estimates unchanged for now, but expect to make significant downwards revision to our forecasts.

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

How will the recent equity rally unfold? Will it take the form of (a) the raging 1980s bull market or (b) is it the euphoria before the storm (like what we saw during the 2007 peak which was followed by a slump) ?

The jury is still out. But it is important to note that equity prices - as well as other asset prices- are increasingly an artificial construct, with interest rates being held hostage by G4 central banks (Fed, ECB, BoJ and BoE) with their synchronised easing as well as unconventional monetary policies. Nonetheless, a global cyclical upturn (which we are seeing encouraging signs of) will lend support to corporate earnings.

The DJIA continued marching higher to fresh highs. Though the S&P 500 has lagged, it is also just a whisker away from its record high.  Bulls were inspired by yesterday's initial jobless claims data -which along with Feb positive ADP private payrolls data- point to some improvement in the sluggish labour market. Thus, we are optimistic about today's BLS reading.

Asian markets will likely be buoyed by risk-on sentiment in the near term.

The STI closed with a doji yesterday. It seemed that the bulls lack high conviction and are hesitating to clear the 3,300 psychological level – which it decisively need to overcome in order to surge higher. Near-term support pegged at 3250/3200 level. 3319 (52-week high) will be the key resistance level, followed by 3400 psychological resistance level and subsequently 3800 major resistance.

Consistent with our guidance (on this page yesterday), the Nikkei continued to rise on Thurs. There was no major announcement surprise from the BoJ monetary policy meeting as doves Kuroda and Iwata (new BoJ leadership nominees) will only preside the 4th April meeting if their nomination is confirmed by both houses.

Specifically, while the bulls pushed the Nikkei above the 12,000 level intra-day on Thurs, their enthusiasm fail to fend off the bears, and the Nikkei pared gains. Looking ahead, it will be a test of the bull’s conviction. There is further upside for the Nikkei if the Nikkei decisively clears the psychological 12,000 level and continues to hug its upper bollinger band.

The CSI 300, HSCEI and HSI slipped, piercing through their respective 10dma support levels, with a doji formed, signaling a tug-of-war between the bulls and bears. For the HSI, in particular, do note that the bearish short-term moving average cross over which portend further downward bias.

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

Macro Data:

In US, initial jobless claims declined 7,000 wk-on-wk to 340,000 for the week ending 2nd March.  Recall the private payrolls increased 198,000 in Feb as indicated by the ADP employment data. Thus, we are pencilling in a positive reading for this Fri BLS data.

In EZ, the ECB stood pat in March, maintaining key policy rates at 0.75% -consistent with our expectations.

In Indonesia, the central bank (Bank Indonesia) stood pat in March (consistent with our expectations), maintaining the benchmark policy rate at a record low 5.75% for the 12th consecutive meeting. 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 Malaysia, Bank Negara Malaysia (BNM) continued to stand pat in March, maintaining the Overnight Policy Rate at 3%. In view of the impending elections as well as resilient domestic demand, we have maintained our view that BNM will continue to stand pat till after, and re-assess its policy rate position post-elections (barring any extreme deterioration in the global macro environment).

Regional Market Focus

Singapore

• The benchmark STI remained range-bound and closed at 3,298.54 (+0.20%). The 4.3bn shares traded were worth S$1.7bn in value. 
• In a review of the STI announced today, IHH Healthcare would be replaced by Thai Beverage in the index. We issued an update to our Singapore Equity Strategy and provided a consolidation of our analysts’ views on the latest developments in their sectors and our stock preferences.
• Top picks for the year are Pan United (Buy, TP: S$1.21), SIAEC (Buy, TP: S$6.10) & Boustead Singapore (Buy, TP: S$1.80). 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. There are hidden gems within Boustead Singapore and we believe that the stock would continue to re-rate as the market appreciates the economic moat in its businesses.

Thailand

• Thai stocks whipsawed in a tight range on Thu in the absence of fresh leads with sector rotation out of bank, petrochemical and commerce counters to healthcare, electronics and printing stocks.
• The composite SET index is likely to remain stuck in the same trading range of 1550-1565 today. Risk sentiment looks bullish today, taking a cue from another record high in US equities overnight after data showed a surprisingly larger-than-expected drop in the number of Americans filing claims for unemployment benefits, pointing to a pick-up in the labor market’s recovery and raising optimism about the closely watched US non-farm payrolls report due out today. However, we believe trading will likely be cautious after the SET index hit a fresh 19-year high and candlestick charts, technically speaking, formed a tri-star top pattern, which pointed to a risk of correction to follow.
• In the near term, investors could continue to selectively buy stocks but should exercise more caution and set a cut loss at 1540 if the SET index breaks below 1550.
• Resistance on the main index is pegged at 1565-1570 and support at 1555-1545 today.

Indonesia

• The majority of stocks traded on the Indonesia Stock Exchange finished higher on Thursday (07/03), despite broad losses on stock markets in Asia, as investors turned cautious ahead of a number of central bank rate decisions on Thursday. The Jakarta Composite Index (JCI) climbed 23.616 points, or 0.49%, at 4,848.299. The advance included seven of the 9 major sectors, led by construction, property and real estate sector with 2.69%-gain, followed by miscellaneous industry sector with 0.99%-advance, and trade and services sector added 0.98%. Most of the blue-chip stocks also rose. The LQ45 index that tracks the blue-chip shares gained 2.911 points, or 0.35%, at 832.315. As many as 153 shares rose, 109 shares fell, and 210 shares remained unchanged Thursday on the Indonesia Stock Exchange, where 6.289 billion shares worth IDR 5.766 trillion changed hands on the regular board. Foreign investors posted net purchases totaling IDR 411.77 billion.
• Positive sentiments in Indonesia stock market will likely to continue today, and bolster the Jakarta Composite Index (JCI) to climb further higher. We expect the JCI to trade higher, with support at 4,809 and resistance at 4,868.

Sri Lanka

• The Colombo bourse continued with yesterday’s positive momentum resulting both indices elevated further within the positive region for the second consecutive day. This was mainly due to the active participations of the foreign and corporate Investors and ASPI Index closed positive at 5,680.02 for the second consecutive day, gaining 16.66 points or 0.29%. The S&P SL20 Index too closed within the green terrain for the third successive day at 3,220.41, indicating an upsurge of 5.55 points or 0.17%. The market capitalization as at the day’s closure stood at LKR 2.18Tn resulting in a year to date gain of 0.70%.The daily turnover soared to heavy LKR 2.54Bn indicating a significant increase of 94.75% against yesterday; Further, this was the highest turnover value recorded since 31st January 2013. Banking, Finance & Insurance and Beverages, Foods &Tobacco topped the list under the sectorial summary contributing LKR 1.98Bn and LKR 247.1Mn respectively. During the day, a total of 46.24Mn Shares changed hands resulting in a decrease of 23.69% against the previous trading day. Price gainers outperformed the price losers by 97:95. Foreigners appeared to be extremely bullish during the day with the recorded crossings resulting a net foreign inflow of LKR 2.18Bn, the highest net foreign inflow for the year while extending the year to date net foreign inflow to record LKR 2.53Mn. In regard to the local FOREX market, the USD closed at LKR 128.96/- selling and LKR 125.80/- buying.

Australia

• On Thursday, the Australian share market finished lower, despite some resilience in the resources and materials sector. The benchmark S&P/ASX200 index was up 7.6 points or 0.15 per cent to 5,109.2.
• Today (08/03/2013), the Australian share market looks set to open higher, following gains in US and European stocks after the British and European central banks kept their rates on hold. The SFE Futures 200 is pointing upwards 8 points or 0.15 per cent to 5,119.
• Locally, in equities news, Nathan Tinkler's Mulsanne Resources matter is due to be heard in the Supreme Court. No major economic news is expected on Friday.

Hong Kong

• Local stocks swung between gain and loss. The HSI and HSCEI dropped 6 points and 47 points to 22771 and 11311 respectively. Market volume was 63.997 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

Hutchison Port Holdings Management Pte. Limited acquired 1,000 shares of par value HK$1.00 each (collectively, "ACT Holdings Shares"), representing the entire issued and paid-up share capital of Asia Container Terminals Holdings Limited ("ACT Holdings") for a total cash consideration of approximately HK$3,167 million (equivalent to approximately S$509 million). (Closing price: S$0.059, +7.273%)

Source: PhillipCapital Research - 08 Mar 2013