Morning Market Commentary

- STI: +0.39% to 3269.1                                 - SET: -1.47% to 1568.3
- JCI: +0.41% to 4822.6                                 - KLCI: +0.25% to 1625.5
- HSCEI: -0.51% to 10740                             - Hang Seng: -0.19% to 22041.9
- Nikkei 225: +2.03% to 12468.2                  - ASX200: -0.27% to 3397.6
- India NIFTY: -1.53% to 5745.95                 - S&P500: -0.24% to 1548.3

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Expect a game of poker between Cyprus, ECB and the other stakeholders in the coming days. Uncertainties persist in Cyprus after parliament overwhelming voted down the proposed bank deposit levy, effectively failing to fulfill a pre-requisite to receive a €10bn bailout. As a result, the euro was slammed to a 4-mth low (1.2843) during intra-day London/NY session, though losses were pared slightly after ECB reaffirmed its commitment to provide liquidity.

What's next for Cyprus:  (i) alternative measures to raise the €5.8bn (which the bank levy initially aimed to raise) through a higher (but targeted) haircut on deposits, sale of state assets (likely to Russians) (ii) Take the path of Greece restructuring.

It is regrettable that the initial proposed bank levy plan was rejected. Reckon that the Cyprus bailout (specifically the bank creditor and depositors bail-in) would have signaled that EZ is serious about debt restructuring which effectively entail deleveraging (rather than bailing out with more debt).

Sit tight and expect bouts of volatility in markets in the near term on account of the following risk events (!):

(i) Possible ambiguity in the Fed's strategy gleaned from the upcoming FOMC statement (released around 2am SGP time, Thurs)  as well as Bernanke's media conference

(ii) re-opening of banks in Cyprus -which are now on extended holiday- could risk of further bank runs

The fact that DJIA inched up higher and the S&P merely slipped –rather than correct sharply- in view of uncertainties shrouding the latest Cyprus bailout suggest that the US equities market is still very much a healthy one.

For the STI, the bulls made a valiant attempt to close Mon’s bearish downside gap. Looking ahead, prices are likely to consolidate before another attempt by the bulls in breaking above 3320 key resistance level. Near-term support pegged at 3250/3200 level

Nikkei 225 gapped up–albeit slightly- on Tues, with the bulls effectively closing the downside bearish gap formed on Mon. Bulls are likely to mount another challenge at the psychological 12,500 level which markets need to clear to surge higher. Next major event risk will be BoJ’s 4th April monetary policy meeting.

Downward bias for the HSI is likely to persist. On Tues, the HSI continued to slip and failed to close Mon’s bearish downside gap. Near-term support at the psychological 22,000 level.

Weakness for the HSCEI is also likely to continue, with the HSCEI continuing to hug its lower bollinger band. Strong technical support at 10,500 level (200dma).

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

Macro Data:

In US, the housing starts inched up by 0.8% m-m sa in Feb, reversing from a 7.3% decline in Jan. Building permits application -an indicator of forward demand- surged by 4.6% m-m to nearly a 5yr high.

In India, the RBI cut its repurchase rate by 25 bps to 7.5% in March after cutting rates by 25 bps in Jan. This is consistent with our expectations iterated in our macro data commentary. Recall we said 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 in March.

In China, FDI rose by 6.3% y-y in Feb, compared to the market predicted 4.8% y-y drop and Jan's 7.3% y-y drop. Despite this improvement in foreign direct investment indicates a rebound of confidence, we caution that this single data point may not be reliable due to the distortion effects of CNY which fell in Feb.

Regional Market Focus

Singapore

• The benchmark STI was little changed at 3,269.13 (+0.39%). The 2.8bn shares traded were worth S$1.3bn in value. 
• The STI traded sideways with the Singapore Market taking cue from macro driven news flow from Europe. Trading activities have slowed, as indicated by the dwindling trading value in recent weeks, after the end of the results season.
• 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

• The composite SET index rallied sharply above a key psychological level of 1600 in the morning but reversed course to trade down as much as 37 points in the afternoon before it finished the session down 23.40 points at 1568.25 points on Tue after the baht rose to its strongest level in nearly 16 years, raising concerns about potential new measures to curb the currency’s strength.
• Overall sentiment in the Thai bourse turns sour after yesterday’s steep fall of as much as 23 points as the market was gripped by a slew of concerns including (1) uncertainty over Europe’s debt crisis on Cyprus concerns: Even though Cyprus’s parliament rejected a proposed levy on savings in banks as a condition for a European bailout, the unresolved banking problems would continue to keep fears alive, (2) the appreciation of the baht: Although the unit steadied at 29.25 per US dollar this morning (0755 hrs Thailand time), it remained the strongest level in more than 16 years, fueling worries about potential new measures to stem the currency’s rise, and (3) a possible bout of profit taking after a failed attempt to test a key psychological level of 1600 yesterday, which may push the market into a consolidation mode and exert more pressure on the market. In our view, more downside could be in store for Thai stocks today if external situation remains worrisome or there are new measures that could hurt market sentiment. The downside target for the composite SET index is seen at 1520-1550. The market is also still keeping an eye on the Federal Reserve’s statement after its two-day policy meeting to look for clues on its continued QE policy.
• For short-term strategy, we advise investors to be more cautious in trading until more clarity emerges. Pare back equity holdings if the SET index fails to close above 1550.
• Today we peg resistance for the composite SET index at 1580-1587 and support at 1562-1550.

Indonesia

• The Jakarta Composite Index (JCI) rebounded on Tuesday (19/03), paring previous day loss as investors shrugged off concerns about Euro-zone debt crisis that resurfaced after news from Cyprus dented sentiments globally on Monday. The JCI ended at 4,822.627, up 19.801 points, or 0.41%. The gain on Tuesday was supported by five of the 9 major industry sectors, led by construction, property and real estate sector that climbed 1.51%, financial sector advanced 1.15%, and trade, services and investment sector added 0.47%. The majority of blue-chip stocks also rose on Tuesday, as the LQ45 index ended 2.058 points, or 0.25% higher to 822.279. 163 shares rose, 102 shares declined, and 207 shares remained flat Tuesday on the Indonesia Stock Exchange, where 6.055 billion shares worth IDR 5.648 trillion changed hands on the regular market. Foreign investors accumulated net sales of IDR 253.28 billion.
• Stocks listed on the Indonesia Stock Exchange will likely be traded lower today, as uncertainty about Cyprus rescue plan looms. We expect the Jakarta Composite Index (JCI) to trade with support and resistance at 4,798 and 4,853.

Sri Lanka

• The Bourse ended the 2nd trading day of the week where both indices exhibited a confident note, retaining at green space having surged positive for the past three trading days as well. This was mainly as a result of the active participation of the corporate and foreign investors. The benchmark ASPI index gained 14.85 points or 0.26% to close the day at 5722.86 and the S&P SL20 price index closed the day at 3,283.79 having gained 13.58 points or 0.42%. As at the day’s closure the Market Capitalization stood at LKR 2.2Tn indicating a year to date on 1.49% and the Market PER and PBV stood at 15.48 and 2.11 respectively. The turnover for the day totaled up to LKR 933.65Mn resulting in a significant increase of 201.80% against the prior trading day. Diversified Holdings (LKR 556.82Mn) stood out as the best performer for the day under the sectorial summary accounting to nearly 60% of the daily aggregate turnover. During the day, a total of 28.48Mn Shares were traded resulting in an increase of 86.50% compared to the previous trading day. Price losers outperformed the price gainers by 92:74. Foreigners appeared to be bullish during the day resulting in a net foreign inflow of LKR 221.84Mn while extending the  year to date net foreign inflow to record LKR 3.98Bn.In regard to the local FOREX market, the USD closed at prices LKR 124.75/- buying and LKR 127.90/- selling.

Australia

• In Australia, the share market on Tuesday lost another 0.56 per cent following the previous day 2.05 per cent tumble, as spooked investors continue to sell off local stocks amid bailout plans for Cyprus. The benchmark S&P/ASX200 index was down 28.0 points or 0.56 per cent to 4,987.04 points, while the broader All Ordinaries index was down 23.06 points, or 0.46 per cent, to 5,004.36 points.

Hong Kong

• Local stocks swung between gain and lost. The HSI and HSCEI dropped 41 points and 54 points to 22041 and 10740 respectively. Market volume was68.32 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

SBI Offshore Ltd announced that the Company has received the listing and quotation notice (the “LQN”) from the Singapore Exchange Securities Trading Limited (the “SGX-ST”) on 19 March 2013 for the listing and quotation of the Placement Shares on the Catalist Board of the SGXST subject to the compliance with the SGX-ST’s listing rules.   (Closing price: S$ 0.138, +15.000%)

China Aviation Oil (Singapore) Corporation Ltd  (“CAO”), the largest physical jet fuel trader in the Asia Pacific region, announced that CAO and its subsidiaries namely, North American Fuel Corporation (“NAFCO”) and China Aviation Oil (Hong Kong) Company Limited (“CAOHK”) (collectively, the “Group”), have been awarded contracts to supply aviation fuel to Air China at three international airports. CAO will supply at Madrid International Airport whilst NAFCO and CAOHK will supply at Los Angeles International Airport and London Heathrow Airport respectively. The term of each of these supply contracts is 18 months commencing from 1 April 2013. The aggregate contractual volume for the expected term is approximately 120,000 metric tonnes. (Closing price: S$ 1.050, +0.478%)

Hoe Leong Corporation Limited announced that the Company has on 19 March 2013 acquired 400,000 ordinary shares, representing 40% shareholding interest in the capital of Supreme Energy Pte Ltd (“SEPL”) for an aggregate net purchase consideration of USD$0.5 million (“Purchase Consideration”) from Supreme Oilfield Services Pte Ltd (“SOS”), making SEPL, a wholly-owned subsidiary of the Company (“Acquisition”).The Purchase Consideration was arrived on a willing buyer willing seller basis, which has taken into account the net tangible asset value of SEPL and was paid in cash by the Company to SOS. (Closing price: S$ -, -%)

China Auto Corporation Ltd (“CAC”/“Company”) announced that the Company has purchased 20% of the issued share capital of Femto Pte Ltd (Femto), for $20,000 from Angada Ltd (“Angada”), a company incorporated in the British Virgin Islands controlled by Mr Victor Levin, a non-executive director and substantial shareholder of the Company. Mr Levin had offered the 20% stake in Femto to help CAC expand its portfolio of advanced fuel saving technologies. The purchase price of $20,000 paid by CAC is based on the original subscription price paid by Angada. The paid up share capital of Femto is $1,000,000. The initial paid up share capital of $100,000 was recently increased to $1 million when three experienced investors invested $900,000 for a 3% stake based on a valuation of $30 million. (Closing price: S$ 0.036, +9.091%)

Source: PhillipCapital Research - 20 Mar 2013