Morning Market Commentary

- STI: -0.90% to 3256.5                                        - SET: -0.41% to 1591.7
- JCI: -0.34% to 4802.8                                        - KLCI: -0.39% to 1621.4
- HSCEI: -2.05% to 10794                                   - Hang Seng: -2.00% to 22083
- Nikkei 225: -2.71% to 12220                            - ASX200: -1.90% to 5018.4
- India NIFTY: -0.64% to 5835.3                          - S&P500: -0.55% to 1552.1

MARKET OUTLOOK:
By Joshua Tan, Head of Research

A 10b + 5.9b euro bailout of Cyprus banks, with the latter sum funded by a shock levy on bank deposits sent equities round the world into risk off mode.

The move worries markets as although Cyprus is a small 24b economy, the precedence set could spark off bank runs in other nations with troubled banking systems. No sign of that yet though. Spain’s Dec12 40b bank bailout was through the common bailout fund (ESM), so fresh off that, depositors there are not expecting further funding needs for their banks.

Chief on investors’ minds is of course – will the selling continue? We have had a very good run in equities, and for every uptrend, you need pullbacks to build a base to push higher. This, plus weaker data in China could be the perfect excuse.

Technically though, you do need some follow thru to confirm this. Today we are already seeing Australia rebounding from yesterday’s selloff, +0.68% at time of writing. The S&P500 candlestick yesterday looks more like normal profit taking than panic. The STI gapped down to doji at the 50dma, if Australia is anything to guide by, we could fill the gap today. The SET and JCI do not look like in panic mode either, while the KLCI is below the 200dma more due to domestic political uncertainty concerning BN’s chances of a strong mandate.

Greater China however, is starting to worry us as latest housing data has confirmed another move higher, couple this with inflation clocking in on the upside suggests that the govt there could go into tightening mode and crash our OW ratings on China A/H markets and the Hang Seng. We will review this rating.

No change to our 2013 ratings of OW equities, MW bonds, MW commodities, UW gold.

(All indexes mentioned can be traded via a PhillipCFD or ETF (see Global Macro Asset Strategy reports)

Macro Data:

In the EZ, risk aversion is higher on account of the Cyprus bailout structure, particularly the potential levy on bank deposits. At this juncture, Cyprus parliament debate will be delayed to Tuesday.

Separately, the EZ registered a trade deficit of 3.9 bn euros in Jan, reversing from a surplus of 10.8 bn euros in Dec.

In Singapore, non-oil domestic exports declined by 16.3 % y-y 3mma in Feb 2013, following the 6.5% contraction in the preceding month.  Electronics shipments slumped 27.4%y-y in Feb, following the 5.6%  decline in Jan. The weakness in non-electronics shipments was stark, registering a decline of 32% in Feb, compared to the 3.7% increase in the preceding month.

In China, 66 out of the 70 major cities saw increases in new residential apartment prices in Feb, compared to 53 in Jan. On y-y basis, 62 saw yearly increases, compared to 53 in Jan. The rising house price, together with the earlier reported accelerated inflation, has significantly limited the government's scope of further monetary loosening to support the yet strong economic recovery. The liquidity would tilt towards tightening in the near term.

Regional Market Focus

Singapore

• The benchmark STI closed lower to 3,256.47 (-0.90%). The 2.8bn shares traded were worth S$1.4bn in value. 
• Weak NODEX data points in Singapore (-16.3%y-y 3mma) and concerns over potential bank runs in Europe led to poor sentiments in the Singapore Market.
• 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

• Cyprus bailout concerns slammed brakes on risk-on trade, dragging global equities lower on Mon but the composite SET index fell less than its peers as selective and small-cap plays helped temper the market’s decline.
• Stock markets in Asia rebounded on Tue from the previous session’s steep falls despite renewed concerns about Europe’s debt crisis after a plan to tax bank accounts in Cyprus to help pay for the country’s bailout as investors are turning their attention to the US Federal Reserve’s two-day policy meeting which starts today to look for clues about further monetary easing action especially after European debt worries returned to the fore. In Thailand, the composite SET index performed quite well and fell less than its peers yesterday though foreign investors turned net sellers of Thai shares worth Bt1.6bn but we believe the strength of the baht to 29.35 per US dollar this morning should continue to keep foreign funds flowing into the Thai market. Overall we expect the benchmark SET index to follow its regional counterparts higher to retest a key psychological level of 1600 today.
• The short-term trading strategy is to be selective until more clarity emerges on external issues.
• Resistance for the composite SET index is pegged at 1596-1600 and support at 1586-1575 today.

Indonesia

• The majority of stocks listed on the Indonesia Stock Exchange finished lower on Monday (18/03), as stock markets in Asia declined on concerns about the Euro-zone debt crisis. The Jakarta Composite Index (JCI) shed 16.498 points, or 0.34%, to close at 4,802.826. The decline on Monday included five of the 9 major sectors, with mining sector plunged 1.35%, financial fell 1.04%, and construction, property and real estate sector lost 0.72%. Blue-chip stocks were also mostly down, with the LQ45 index trimmed 1.528 points, or 0.19%, at 820.221. As many as 180 stocks declined, 79 stocks advanced, and 213 shares stagnated Monday on the Indonesia Stock Exchange, where 4.77 billion worth IDR 4.93 trillion changed hands on the regular board. Foreign investors posted net purchase totaled at IDR 29.82 billion.
• Indonesian stocks will likely to pare yesterday’s loss, as investors may shrug off concerns about the euro-zone debt turmoil. We expect the Jakarta Composite Index to trade higher today, with support and resistance at 4,762 and 4,843, respectively.

Sri Lanka

• The Colombo bourse concluded the trading day on a positive note for the third successive trading day resulting in both indices retaining within the green territory. The ASPI Index closed positive at 5,708.01 gaining 3.48 points or 0.06% during the day Meanwhile the S&P SL20 Index increased by 7.77 points or 0.24% to close at 3,270.21. The market capitalization as at the day’s closure was LKR 2.19Tn recording a year to date gain of 1.21%.The total turnover for the day amounted to LKR 309.4Mn; this was a decrease of 57.62% compared to the previous trading day. Under the Sectorial review Bank Finance & Insurance and Diversified Holdings stood out as the best performers contributing LKR 118.8Mn and LKR 99.8Mn respectively. Shares totaling up to 15.3Mn were traded during the day recording a decrease of 24.33% against the previous trading day. Price losers outpaced the price gainers at a ratio of 86:74. The foreigners appeared to be bearish during the day having recorded inflows aggregating up to 3.41Bn for Seven consecutive trading days; resulting in a net foreign outflow of LKR 5.92Mn while reducing the year to date net foreign inflow to record LKR 3.76Bn. The USD closed at a quoted price of LKR 127.83/- selling.

Australia

• In Australia, the share market on Monday lost two per cent as spooked investors sold off local stocks amid bailout plans for Cyprus. The benchmark S&P/ASX200 index was down 104.8 points or 2.05 per cent to 5,015.4 points, while the broader All Ordinaries index was down 101.9 points, or 1.99 per cent, to 5,027.4 points.
• Today, the Australian share market looks set to open higher despite overnight falls on international markets with investors spooked following Cyrpus' bailout plans that include a deposit tax. The SFE Futures 200 is pointing downwards 44 points or 0.87 per cent to 5,050.
• In economic news on Tuesday, the Reserve Bank of Australia (RBA) releases the minutes of its March board meeting, RBA assistant governor (financial markets) Dr Guy Debelle speaks on the topic of Some Recent (And Not So Recent) Trends in Australian Debt Markets at the KangaNews DCM Summit 2013 and RBA deputy governor Philip Lowe addresses the Australian Industry Group's 13th Annual Economics Forum.
• In equities news, New Hope Coal is expected to post full year results.

Hong Kong

• Local stocks slumped. The HSI and HSCEI slumped 449 points and 226 points to 22083 and 10794 respectively. Market volume was78.23 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 22000 level, major resistance will be 23000 level.

Morning Note

Company Highlights

Sembcorp Marine announced that its subsidiary, PPL Shipyard, has secured orders for two turnkey contracts with a combined value of US$417 million for the construction of two units of jack-up rigs from repeat customer Integradora de Servicios Petroleros Oro Negro, S.A.P.I. de C.V. Scheduled for delivery at end of the fourth quarter of 2014 and end of first quarter 2015, the pair of high specifications and high performance deep drilling offshore jack-up rigs will be built based on PPL Shipyard’s proprietary Pacific Class 400 design. Including the two jack-up rigs of similar design ordered in November 2012, the total number of Pacific Class 400 jack-up rigs ordered by Oro Negro now stands at four units. Barring unforeseen circumstances, Sembcorp Marine expects a positive contribution to its earnings from the contracts. However, the contracts are not expected to have any material impact on the consolidated net tangible assets and earnings per share of Sembcorp Marine for the year ending December 31, 2013. (Closing price: S$5.160, +0.389%)

Singapore Telecommunications Limited announced that it is conducting a strategic review of the Optus Satellite business to optimise value for shareholders. SingTel has appointed Credit Suisse and Morgan Stanley as financial advisors to assist with the review. SingTel will make an appropriate announcement in the event of any material development arising from the review. (Closing price: S$3.570, -0.279%)

World Precision Machinery Limited announced that the Group has won a tender to design, manufacture, deliver and commission high-end stamping machines for Chongqing Baosteel Meiwei Wheel, Co., Ltd., the automobile spare parts division of the world’s second largest steel producer, Baosteel Group Corporation. Baosteel Meiwei Wheel has placed orders for a total of 13 units of high-performance and high-tonnage stamping machines, comprising 10 units from the JS31 model series and 3 units from the JH21 model series. The total value of the order is RMB20.8 million and the equipment manufacturing and installation will be completed in the third quarter of 2013. (Closing price: S$0.410, -1.205%)

Ascendas Funds Management (S) Limite, the manager of Ascendas Real Estate Investment Trust announced the acquisition of The Galen at 61 Science Park Road at S$126.0 million from Singapore Science Park Ltd. The Property is a 6-storey multi-tenanted science park building sited on a land area of 16,308 sqm. It has a gross floor area and net lettable area of 30,685 sqm and 21,775 sqm respectively and has an occupancy rate of approximately 97.5%. On completion of the Acquisition, which is expected by to take place by end-March 2013, a land lease of 66-year tenure will be granted to A-REIT. The total acquisition cost of the Property is currently estimated to be approximately S$127.9 million. The Acquisition is expected to generate a net property income yield of approximately 6.8%. The pro forma financial effects of the Acquisition on the distribution per Unit for FY11/12 would be an additional 0.052 cents per Unit. (Closing price: S$2.580, +1.176%)

Keong Hong Holdings Limited announced that Keong Hong Construction Pte Ltd, a wholly-owned subsidiary of the Company has been awarded the contract by CEL-Alexandra Pte Ltd, a subsidiary of mainboard listed Chip Eng Seng Corporation Ltd, to construct a 19-storey hotel mixed development comprising a 13-storey hotel tower and a 6-storey podium, which will consist of three levels of commercial shop space and three levels of multi-storey carparks. Located at the busy junction of Jalan Bukit Merah and Alexandra Road (ex-Safra Building), the Project will commence construction end of March 2013 in phases and is scheduled to be completed within 24 months from the Commencement Date. As at the date of this announcement, Keong Hong’s gross order book based on secured contracts stands at approximately S$550 million, with projects stretching up to 2016. (Closing price: S$0.525, - )

Yongnam Holdings Limited announced to shareholders that it has joined a consortium comprising JGC Corporation and Changi Airport Planners and Engineers Pte. Ltd. to evaluate the requirements of submitting a tender for the construction and management of Hanthawaddy International Airport in Myanmar. As at the date of this announcement, the Consortium has been pre-qualified to submit a tender for the Project. The award of the tender for the Project is subject to the approval of the Myanmar authorities. The Company wishes to emphasise that discussions are still preliminary and as at the date of this announcement, the Board of Directors of the Company has not decided to proceed with the submission of a tender for the Project. (Closing price: S$0.270, - )

Yoma Strategic Holdings Ltd announced the establishment of a new joint venture company and the proposed acquisitions of several luxury tourism assets in Myanmar. The Group has established a joint venture company, Chindwin Holdings Pte. Ltd with First Myanmar Investment Co., Ltd, a subsidiary of Serge Pun & Associates (Myanmar) Limited. The Group will hold 70% of the share capital of Chindwin while FMI will hold the remaining 30%. The purpose of Chindwin is as an investment holding company for tourism assets jointly invested in by the Group and FMI. Chindwin intends to purchase 75% of the share capital of Shwe Lay Ta Gun Travels and Tours Company Limited for a total consideration of US$10.7 million. SLTG operates the “Balloons over Bagan” luxury tour business in Bagan, Myanmar. Chindwin also intends to purchase a 75% interest in 21.16 acres of land located in Bagan. This is conditional upon the present owner converting the existing land-use rights to permit the construction and operation of a hotel business. The total consideration to be paid will be US$3.75 million. Chindwin also intends to purchase 75% of the share capital of Eastern Safaris Pte. Ltd for a total consideration of US$0.1 million. ESPL is a management company that offers exclusive and luxurious adventure tours in Myanmar and Bhutan. The Group’s investment in Chindwin and the Proposed Acquisitions will be funded through internal resources and is not expected to have any material financial impact on the consolidated net tangible assets and the earnings per share of the Company for the current financial year ending 31 March 2013. (Closing price: S$0.775, -3.727% )

Source: PhillipCapital Research - 19 Mar 2013