Morning Market Commentary

- STI: +0.31% to 3303.0                                  - SET: -0.06% to 1576.7
- JCI: -0.41% to 4854.3                                   - KLCI: -0.09% to 1656.5
- HSCEI: -1.26% to 11292.1                           - Hang Seng: -0.87% to 22890.6
- Nikkei 225: -0.28% to 12314.8                    - ASX200: +0.09% to 3427.9
- India NIFTY: -0.48% to 5914.1                     - S&P500: -0.24% to 1552.5

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

In the absence of a positive catalyst, the bulls took a breather on Tuesday after charging ahead in recent days. Specifically, the S&P 500 pulled back slightly but remain just a whisker away from its record high. While the DJIA continued to inch up higher to fresh highs, we caught sign of indecision in the markets which is reflected by the 'doji' formed at the session close.

What could inspire the bulls (or bears)? Over the next 24hrs, we are keeping a lookout for the advance estimate of US Feb retail sales (released 8.30pm SGP time). If retail sales holds out, there is a good chance that markets will continue to rally in the near-term. Why is this data point of particular interest? 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.
Amid this recent equity euphoria, we wish to caution readers that geopolitical tensions are building up in Korea, escalating from Pyongyang's recent aggressive rhetoric. And this North Korea risk is really the wild card.

For the STI, the 3,300 psychological level was cracked but could be re-tested. Price action suggests that the bulls managed to fend off some (but not all) the bears, with prices ending near the intra-day low, forming a ‘gravestone doji’. Looking ahead, the bulls need to decisively overwhelm the bears to take the STI 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.

Nikkei 225 pulled back –albeit slightly- on Tues. From a chartist perspective, the Nikkei rally still has legs as the Nikkei continues to hug the upper bollinger band, though there might be some struggle to clear the psychological 12,500 level.

HSCEI and HSI slipped, though the indices were still technically supported by their respective 10dma support levels. For the HSCEI and HSI, 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 India, industrial production rebounded to 2.4% y-y in Jan, reversing from a 0.5% contraction in the preceding month. We opine that in view of some progress made by the government in addressing some of the structural growth constraints as well as easing inflationary pressures, the RBI might have more policy room to stimulate growth after cutting rates by 25 bps in Jan (the first cut since Apr2012).

In UK, industrial production unexpectedly fell by 1.2% m-m in Feb, while the market was predicting a 0.1% m-m gain, after the 1.1% m-m gain achieved in Jan. On y-y basis, the gauge fell by 2.9% y-y, after the 1.7% y-y drop in Jan. Manufacturing production fell by 1.5% m-m, reversing the 1.6% m-m gain achieved in Jan. Amid the unsolved Euro zone debt crisis, demand for UK products from external remains weak. Britain’s economy shrank in the fourth quarter and the Bank of England has forecast that growth will remain weak in the near term. BOE policy makers held their bond-purchase plan at 375 billion pounds ($558 billion) last week as officials debate more radical measures to revive growth.

In Japan, tertiary industry index fell by 1.1% m-m in Jan, reversing the earlier 1.1% m-m gain achieved in Dec, indicating the momentum of the nation’s tertiary industry was still weak. Sub measures for wholesale and retail sales, the biggest component for tertiary industry index, fell by 3.5% m-m in Jan, after the 0.1% m-m drop in Dec. The nation’s corporate goods prices rose by 0.4% m-m in Feb, after advancing 0.2% m-m in Jan. The committed monetary easing by the new government and central bank leadership has sent Yen plunging by over 20% since Oct 2012, and the weak yen would keep lending support to the nation’s exports sector.

In Australia, business confidence fell to 1 in Feb, from 3 in Jan, indicating a weakening business sentiment. Business condition index fell to -3 from earlier -2, indicating a deteriorating business environment. The RBA is holding the benchmark interest rate at 3.0%, matching the half century low. With inflation stays within target range, the central bank still has scope for further rate cuts.

Regional Market Focus

Singapore

• The benchmark STI closed 10.05 points higher at 3,303.02 (+0.31%). There were 4.1bn shares traded worth S$1.4bn in value.
• The top active stocks include DBS (+1.42%), SPH (+3.94%), GLP (+1.15%), Singtel (+1.72%), and Capitaland (+1.42%).
• 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

• Trading was extremely choppy on Tue as intraday profit-taking led the composite SET index to finish the session down slightly. Trading volume however surged to Bt86.3bn while net foreign buying of Thai shares continued to the tune of around Bt1.32bn.
• Even though a pickup in net foreign buying of Thai shares and the appreciation of the Thai baht to 29.57 per US dollar this morning (0750 hrs Thailand time) should keep bullish sentiment intact today, we believe the higher the market goes, the greater the risk of a short-term profit taking will follow especially when the benchmark SET index inched closer to key resistance levels of 1580-1600 as in the case of yesterday’s trades. The main index rallied to near 1587 points before profit taking dragged it lower to end the session down slightly at 1577 points yesterday. In our view, questions over how much higher the market can go will keep investors wary of trading stocks amid more sector rotation plays. Overall we expect the SET index to trade in a range of between 1570-1584 points today.
• For short-term trading strategy, we continue to recommend investors selectively buy stocks with more caution.
• Today we peg resistance for the composite SET index at 1584-1593 and support at 1570-1560.

Indonesia

• The majority of Indonesian stocks finished in negative territory on Monday (11/03), despite mostly higher stock indexes in Asia after positive closes on US markets on Friday. The Jakarta Composite Index shed 20.183 points, or 0.41%, at 4,854.312. Seven of the 9 major sectors declined, with miscellaneous industry sector plunged 2.40%, mining lost 1.1%, and agriculture fell 0.88%. The LQ45 index shed 5.576 points, or 0.67%, to close at 831.708. In corporate news, CVC Capital Partners and Multipolar (MLPL) offered shares in retailer Matahari Department Store (LPPF) for up to USD 1.36 billion (IDR 13.13 trillion), or 1.167 billion shares, in a range of IDR 10,000 – 11,250. The offering has secured cornerstone pledges from global and regional investors, including BlackRock, Fidelity Investments, Schroders, Government of Singapore Investment Corp, Temasek, and Goldman Sachs Investment Strategies. The share sale is expected to also help boost liquidity in the thinly traded stock. More than 130 shares declined, 118 shares advanced, and 223 shares ended unchanged Monday on the Indonesia Stock Exchange. Volumes on the regular market totaled at 5.28 billion shares worth IDR 4.55 trillion. Foreign investors accumulated net purchases with a total value of IDR 157.47 billion. Indonesia Stock Exchange was closed on Tuesday (12/03), in observance of Hindu’s Seclusion Day.
• The Jakarta Composite Index will likely to be traded flat today, as lack of drive from US markets on Tuesday may give little momentum to the Indonesia stock market. We estimate the JCI to be traded with support and resistance at 4,824 and 4,902, respectively.

Sri Lanka

• The Colombo bourse ended the day on an optimistic note resulting in both indices to close within the green terrain; this followed the negative and positive closures recorded by the ASPI and S&P SL20 index respectively during the previous trading day. The Market displayed slow movements during early hours of trade prior to mid-day however the trend reversed prior to the day’s closure. The ASPI gaining 27.01 points or 0.48%   closed positive at 5,704.32 while, the S&P SL20 Price Index ended at 3,247.09 within the green terrain for the 6th successive trading day gaining 17.90 points or 0.55%. The market capitalization as at the day’s closure stood at LKR 2.19Tn recording a gain of 1.15% year to date and the market PER(X) and PBV(X) stood at 15.42 and 2.10 respectively. The turnover value for the day accumulated to LKR 671.59Mn recording an increase of 20.57% against the previous trading day. Diversified Holdings and Bank Finance Insurance stood out at the top under the sectorial summary contributing LKR 375Mn and LKR 179Mn respectively. A total of 19.8Mn Shares were traded during the day resulting in an increase of 42.92% compared to the prior trading day. Price gainers outperformed the price losers by 94:88 . Foreigners appeared to be bullish during the day for the fourth consecutive trading day resulting in a net foreign inflow of LKR 320.99Mn while extending the year to date net foreign inflow to record LKR 3.10Bn. In regard to the local Forex market, the USD closed at prices LKR 125.03/- buying and LKR 128.18/- selling.

Australia

• The Australian share market on Tuesday closed lower, with the benchmark S&P/ASX200 index losing 29 points to 5,117.9.
• Today (13/03/13), the local market is set to open higher as Wall Street posted a small rise and on better news from Spain, where borrowing costs eased.  The SFE Futures 200 is pointing upwards 13 points or 0.25 per cent to 5,127.
• In economic news on Wednesday, the Australian Bureau of Statistics (ABS) releases housing finance for January, and Westpac and the Melbourne Institute release their survey of consumer sentiment.
• In company news, National Australia Bank is providing a technology and strategy update.

Hong Kong

• Local stocks swung between gain and loss. The HSI and HSCEI dropped 200 points and 143 points to 22890 and 11292 respectively. Market volume was 69.14 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 23300 level.

Morning Note

Company Highlights

ST Engineering has exercised the purchase option it entered into with Pratt & Whitney for the use and acquisition of intellectual property assets. The deal was executed via its 50.1-per-cent owned subsidiary EcoServices LLC. This will enable EcoServices, a US-based engine wash services provider, to fully own, manage and protect its own portfolio of intellectual property assets required to operate its business. ST Engineering had acquired its stake in EcoServices in May 2012 through VT Aerospace, which in turn is owned by VT Systems, the US headquarters of ST Engineering. Pratt & Whitney retained the remaining 49.9 per cent in EcoServices, and contributed all the assets of the joint venture's business to EcoServices - except the intellectual property. EcoServices had entered into an exclusive, perpetual, irrevocable and worldwide licence and purchase option agreement with Pratt & Whitney for the use and acquisition of that intellectual property. At that time, the licence and purchase option had cost US$13.3 million. (Closing price: S$4.170, -0.714%)

Keppel Logistics, a wholly owned unit of Keppel Telecommunications & Transportation, said that it had leased a two-hectare site to develop an air logistics hub in eastern Singapore. The new four-storey ramp up warehouse will add about 350,000 square feet to Keppel Logistics' warehouse capacity in Singapore, and raise overall capacity by 20 per cent. The hub will be completed in early 2015. (Closing price: S$1.365, +0.368%)

Midas Holdings said that it had clinched five contracts worth 109.6 million yuan (S$21.71 million). The contracts to supply aluminium alloy extrusion and fabricated parts to five metro projects in China were secured by its subsidiary, Jilin Midas Aluminium Industries. Of the five, four were awarded by its 32.5 per cent owned joint-venture company, Nanjing SR Puzhen Rail Transport Co. It includes a 27 million yuan deal to supply parts to the Wuxi Metro Line 2 project, a 22.7 million yuan deal for the Dongguan Rapid Railway R2 Line project and a 17.6 million yuan deal for the Nanjing-Gaochun Intercity Rail project. Deliveries for these will take place between this year and 2014. (Closing price: S$0.500, +2.041%)

KSH Holdings Limited said it is looking to raise about S$13.9 million via a share placement. It intends to place up to 30.9 million new shares and 4.1 million existing shares at 40.8 Singapore cents apiece, representing a 5.18 per cent discount to the weighted average price for trades done on Monday. Together, the placement shares make up up to 8.45 per cent of KSH's enlarged capital after the placement. KSH plans to use about 70 per cent of the net proceeds to support the growth of its business and operations in Singapore, China and Southeast Asia, including the funding of strategic investments and joint ventures. The remainder will be used as working capital for existing business operations, it said. (Closing price: S$0.440, -%)

Ace Achieve Infocom Limited announced that it has secured a repeat contract from China Unicom Limited to supply IT infrastructure and related installation services for the third consecutive year. Based on the terms of the agreement, Ace Achieve will supply and install new server infrastructure in China Unicom’s facilities in 11 provinces in China, which is part of China Unicom’s annual IT infrastructure upgrading plan. Scheduled to be completed within nine months, the project is divided into various phases, with the first phase amounting to RMB5.0 million. “The consecutive contract win from China Unicom further reaffirms the group’s advanced technology and expertise in supporting leading telecommunication operators in China,” said Deng Zelin, Executive Chairman and Chief Executive Officer of Ace Achieve. As China’s mobile subscribers continue to grow – reaching 1.12 billion in January 2013, telecommunication operators are constantly upgrading their IT infrastructure to support customers expanding needs. At the same time, with increased 3G penetration rate and the shift towards non-voice and data based revenue, operators are placing greater focus on adopting new technology and equipment to enhance network performance and thereby improving service quality level. The latest contract is expected to generate RMB20.0 million in revenue to the group, it said. (Closing price: S$0.044, -%)

Source: PhillipCapital Research - 13 Mar 2013