Morning Market Commentary

- STI: +0.59% to 3267.7                                 - SET: -0.92% to 1529.5
- JCI: -0.60% to 4802.7                                  - KLCI: -0.05% to 1630.8
- HSCEI: -0.31% to 10944.4                          - Hang Seng: -0.14% to 22225.9
- Nikkei 225: +1.34% to 12635.7                   - ASX200: -0.64% to 3371.9
- India NIFTY: -0.63% to 5658.8                     - S&P500: -0.83% to 1545.8

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

S&P 500 and DJIA retraced lower -albeit slightly- overnight. While US is certainly not immune from the  elevated uncertainties on the Cyprus/EZ front, that merely provided an excuse for the bulls to take a breather after a decent run. In fact, US equities are demonstrating resilience and yesterday’s release of upbeat manufacturing, housing and employment data vindicated our OW on US equities.

Europe was slammed with a double whammy on account of (i) disappointing March flash EZ PMI data owing to weakness in Germany and esp France as well as (ii) ECB’s ultimatum to Cyprus – No emergency liquidity assistance for Cypriot banks if Cyprus government doesn't have a deal in place by next Mon. Consequently, Europe markets sold off (Stoxx Europe 600: -0.7%).

The EURUSD is unlikely to reclaim the 1.30 level anytime soon in view of uncertainties shrouding the Cyprus bailout as well as contagion concerns. Thus, don’t pin too high hopes of a short squeeze. Rather expect some sideways consolidation in a range between 1.2843 and 1.3000 after a bout of sustained sell-off. Maintain yesterday’s call to sell EURUSD rallies (if any) for now.

Note the re-opening of banks in Cyprus -which are now on extended holiday till next week- could risk of further bank runs. 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 who has a vested interest) (ii) Take the path of Greece restructuring.

Buy the dips for USDJPY and Nikkei 225 from a trading perspective. On Thurs, we wrote to keep a close lookout for comments from the new BoJ leadership (dovish). Kuroda- in his inaugural press conference yesterday as the BoJ Governor- indicated that "quantitative easing is indispensable". But apart from the rhetoric, we -along with markets- were disappointed by the lack of details of monetary policy hence forth. Consequently, USDJPY dipped below the 95  level. Next major event risk will be BoJ’s 4th April monetary policy meeting. We expect the USDJPY to challenge its next major resistance at 96.7 (3yr high). Thus, dips below the 95 level are opportunities to accumulate long positions in USDJPY.

The CSI300 inched up higher on Thurs in view of solid manufacturing activity in March according to the flash reading of China’s manufacturing PMI, which to a large extent has already been priced in by markets on Wed. Looking ahead, will the CSI 300 climb higher? We are cautious as such strong economic readings will lead the PBoC to undertake a prudent (i.e. tight) monetary stance. Furthermore, the new Chinese leadership needs to translate rhetoric to concrete reforms, otherwise markets –if left disappointed- will certainly not spare the rod.

Meanwhile, the HSI and HSCEI could get some reprieve from recent selling pressure after bouncing up from its lower bollinger band. But we cautioned that further near-term weakness is still likely in view of the bearish short-term moving average cross over.

For the STI, the bulls are likely to test the 3320 key resistance level, barring downside risks. Support level pegged at 3250/3200.

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

Macro Data:

In US, the 4-week moving average for initial jobless claims declined 8,000 to 340,000 for the week ending Mar 16, suggesting a gradual recovery in the labour market.  On the housing front, existing home sales increased by 0.8% m-m to 4.98 million seas adj in Feb, registering a 3-year high. Lastly, flash manufacturing PMI for March rose 0.6pts m-m to 54.9, indicating continued expansion in manufacturing output.
In EZ, March flash PMI came in weaker-than-expected at 46.5 (vs consensus 48.2) after Feb reading of 47.9, on the back of weakness in German and French PMIs. Growth risks for the EZ are certainly to the downside.

In China, preliminary reading for HSBC manufacturing PMI reported 51.7 in Mar, higher than the market expected 50.8 and Feb’s 50.4, indicating a continued economic recovery of the nation. This reading is in line with our expectation that China will have a mild economic recovery in 2013.

In Japan, exports fell by 2.9% y-y in Feb, exceeding the market expected 1.7% y-y drop.  Exports to China fell 15.8 percent as Asia’s largest economy celebrated the week-long Lunar New Year holiday in February, while shipments to Asia dropped 5.2 percent. Exports to the U.S. rose 5.7 percent, while those to the European Union fell 9.6 percent. The weak exports data underscores the loosening policies committed by the new Central Bank Governor Haruhiko Kuroda.

Regional Market Focus

Singapore

• The benchmark STI was little changed at 3,267.65 (+0.59%). The 3.7bn shares traded were worth S$1.3bn in value. 
• OUE (Accumulate, TP: S$3.07) closed up 4% after announcing that they are currently in preliminary discussions with banks to establish a REIT. 
• 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 extended its losing streak from the previous session on Thu on Cyprus debt concerns and stronger baht but selective buying helped limit the downside. 
• More downside could be on the cards for the Thai stock market today amid heightened worries about the effect of Cyprus’ troubles on the euro zone. The European Union has given Cyprus until Mon to raise 5.8bn euros it needs to get a 10bn euro international bailout from ECB/IMF to avoid the collapse of its financial system and exit from the euro bloc. In Thailand, the rapid rise of the baht is also fueling speculation of new measures to stem the currency’s strength, creating an overhang in the market as long as lack of clarity remains. Foreign investors stayed on the selling side in both Thai equities and futures markets. Overall we see a lack of positive catalysts that are strong enough to trigger a serious rebound. We believe more consolidation could be the order of the day for Thai stocks. A breakdown below 1520, which implies a 5% correction, could suggest strong potential for further pullback towards 1440, which represents a 10% correction.
• The short-term strategy is to be selective in stocks.
• Resistance for the composite SET index is seen at 1538-1546 and support at 1520-1508 today.

Indonesia

• Benchmark index of Indonesian stocks declined Thursday (21/03), paring early session gain, despite higher closes on US markets overnight. The Jakarta Composite Index (JCI) shed 28.834 points, or 0.60%, at 4,802.666. Seven of the 9 major industry groups fell on Thursday, with mining sector plunged 2.48%, miscellaneous industry sector lost 1.03%, and basic industry sector declined 0.99%. The LQ45 index slipped 7.395 points, or 0.90%, at 816.132, with 27 of the 45 blue-chip components finished in red. 110 shares climbed, 164 shares fell, and 198 shares stagnated Thursday on the Indonesia Stock Exchange, where 7.499 billion shares worth IDR 7.131 trillion traded on the regular board. Transactions by foreign investors accumulated to net sales of IDR 418.513 billion.
• The Jakarta Composite Index will likely decline today, following negative closes on US markets overnight that may raise negative sentiments in Asia today. We expect the JCI to trade lower, with support and resistance at 4,746 and 4,883 respectively.

Sri Lanka

• The Colombo Bourse ended the trading day on an optimistic note further accelerating the indices at the green space for the 4th consecutive day of the week. This was mainly as a result of the active participation of the investors seen throughout the trading day. The benchmark ASPI index gained 29.01 points or 0.51% to close the day at 5,763.83 and the S&P SL20 price index closed the day at 3,313.28 having gained 13.72 points or 0.42%. The market capitalization as at the day’s closure stood at LKR 2.22Tn resulting in a year to date gain of 2.22% and the market PER and PBV stood at 15.59 and 2.13 respectively. The aggregate turnover for the day amounted to LKR 672.39Mn indicating an increase of 24.59% against the previous trading day. During the day investor attractions were vastly seen on Bank Finance & Insurance (BFI) sector with 2,150 trades out of the total 5,623 trades been recorded, hence assisting BFI emerge as top contributor under the sectorial summary having provided LKR 319.28Mn which accounts to 47.48% of the daily aggregate turnover. Further, Land & Property (LKR 96.08Mn) stood next to BFI under the sectorial summary mainly due to the contribution made by EAST. A total of 36.34Mn Shares changed hands resulting in an increase of 73.82% against the previous trading day. Price gainers surpassed the price losers by 136:59. Foreigners appeared to be bullish during the day for the third successive trading day resulting in a net foreign inflow of LKR 99.68Mn, while extending the year to date net foreign inflow to record LKR 4.29Bn. In regard to the local FOREX market, the USD closed the day at LKR 128.22/- selling and LKR 125.07/- buying.

Australia

• In Australia, the share market on Thursday tumbled for four consecutive days. The benchmark S&P/ASX200 index was down 7.9 points, or 0.16 per cent, at 4,959.41 points.

Hong Kong

• Local stocks swung between gain and lost. The HSI and HSCEI dropped 430 points and 34 points to 22225 and 10944 respectively. Market volume was64.92 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

Rickmers Trust Management Pte. Ltd., as trustee-manager of Rickmers Maritime, announced that in a showing of strong support for its 1-for-1 renounceable rights issue, Capital Research and Management Company, an affiliate of The Capital Group Companies, Inc. has provided an undertaking to subscribe and pay, in full, for such number of rights units to maintain its current unitholding percentage level of approximately 6.47%, after the rights issue. (Closing price: S$0.335, +1.515%)

Sembmarine SLP Ltd, a subsidiary of Sembcorp Marine, announced that it has been awarded an exclusive licence by Seahorse Platform Partners Ltd to use its patented SEAHARVESTER ™ and SeaHorse™ technology in the design and construction of Minimum Facilities Platforms for the North Sea, Irish waters and other territorial waters of the UK. In addition SLP and SPPL have signed a Memorandum of Understanding by which, subject to contract, SPPL will award an additional exclusive licence for the technology for use in the design and construction of MFPs for South East Asia and Australasia (excluding Malaysia and Brunei). (Closing price: S$4.46, -0.668%)

JES International Holdings Limited announced that the Group, through its wholly-owned subsidiary Jiangsu Eastern Heavy Industries Co., Ltd, has signed a letter of intent to construct up to 4 Offshore Accommodation Vessels valued at approximately USD147 million each. This letter of intent is signed with the buyer from a Singapore-based offshore company. The eventual arrangement with the buyer is likely to be in the form of an order contract for 1 OAV and 3 options of 1 OAV each. The Group expects to sign the formal agreements with the buyer before May 2013 pending finalisation of certain details of the terms. The OSVs, a DPII type, are equipped with offshore construction capabilities and is expected to be capable of accommodating about 400 to 500 crews and staffs. The agreements are not expected to have a material impact on the net tangible assets and earnings per share of the Company for the year ending 31 December 2013. (Closing price: S$0.162, +0.621%)

Pan Hong Property Group Limited announced that Sino Harbour Property Group Limited and its subsidiaries have made a successful bid for the land use rights of the Land offered for sale by Hangzhou Bureau of Land and Resources through the tender by the Public Resources Transaction Centre of Hangzhou on 21 March 2013 for a total consideration of RMB506,000,000. The bidder qualification review by BLRH was passed and a successful Bid Confirmation was issued by BLRH on 21 March 2013. Land grant contract in relation to the acquisition will be entered into on or before 28 March 2013. (Closing price: - , - )

CapitaRetail China Trust Management Limited, in its capacity as manager of CapitaRetail China Trust, announced the establishment of the Distribution Reinvestment Plan, pursuant to which Unitholders may elect to receive New Units in lieu of all or part only of the cash amount of any distribution to which the Distribution Reinvestment Plan applies. The Distribution Reinvestment Plan will provide Unitholders with an opportunity to elect to receive distributions in the form of fully-paid New Units, instead of cash. It will enable Unitholders to increase their unitholdings in CRCT without incurring brokerage fees, stamp duties (if any) and other related costs. CRCT will also benefit from the participation by Unitholders in the Distribution Reinvestment Plan as, to the extent that Unitholders elect to receive distributions in the form of New Units, the cash which would otherwise be payable by way of cash distributions may be retained to fund the growth and expansion of CRCT. The issue of New Units in lieu of cash distributions under the Distribution Reinvestment Plan will also enlarge CRCT’s capital base and the cash retained thereof will strengthen its working capital. (Closing price: S$1.700, +0.592%)

Source: Macquarie Research - 22 Mar 2013