Morning Market Commentary

- STI: +0.64% to 3288.5                                 - SET: +1.32% to 1544.0
- JCI: +0.89% to 4842.5                                 - KLCI: +0.54% to 1652.8
- HSCEI: -0.48% to 10925.1                          - Hang Seng: +0.27% to 22311.1
- Nikkei 225: -0.60% to 12471.6                    - ASX200: +0.31% to 3376.8
- India NIFTY: +0.14% to 5641.6                  - S&P500: +0.78% to 1563.8

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

In the US, the bulls were reinvigorated after taking a breather over the recent Cyprus bailout(or rather bail-in). The DJIA continued to march to fresh highs while the S&P 500 was merely a whisker away (i.e. 2pts) from its record high. US data released yesterday was mixed. Key takeaways are as follows: (i) Core (nondefense, ex-aircraft) capex shipments climbed by a solid 1.9% m-m in February. Though core capital good orders slipped 2.7% m-m, it should be seen as a technical pullback from the 6.7% gain in the preceding month. (ii) While the recent budget sequester has weighed on consumer sentiment, spending is still holding up.

Much as we dislike to be party poopers, we caution that the Cyprus saga is not over –yet. While bank runs might be curbed by capital controls when Cypriot banks re-open this Thursday (28 Mar), EZ is likely to be confronted with a crisis of confidence. Specifically, the Cyprus bailout bailout (i.e. the private depositors bail-in) signals that EZ is serious about debt restructuring which effectively entail deleveraging (rather than bailing out with more debt). But such move risks broader capital flight from other EZ members, particularly Italy and Spain as well as banks with healthy balance sheets.

In Singapore, the bulls led the charge for STI from the opening bell till the closing (bullish marubozu) and cleared the 50dma resistance. STI likely to challenge the 3320 resistance so long as it stays above key support at 3250.

Expect the USD/SGD to test the 1.24 level again. While manufacturing performance has been lackluster ytd (see macro data below), inflationary pressures are likely to persist on account of accommodation cost pressures as well as wage-cost pass through. Thus, we expect MAS to continue to stand pat -maintaining a modest and gradual appreciation of the S$NEER.

In Japan, the USDJPY (JPY bears) are starting to tire out and consequently the Nikkei 225retraced lower on Tues. For the Nikkei rally to continue, the bulls need to take the index above the 12,500 minor resistance level and the USDJPY need to resume its climb above the 95 level.

The HSI pulled back to its 10dma but further near-term weakness is still likely in view of the bearish short-term moving average cross over. Ditto for the HSCEI.

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

Macro Data:

In US, the Conference Board’s consumer confidence index dropped 8.3pts m-m to 59.7 in March, as the recent budget sequester weighed on sentiment. Core (nondefense, ex-aircraft) capex shipments climbed by a solid 1.9% m-m in February. Though core capital good orders slipped 2.7% m-m, it should be seen as a technical pullback from the 6.7% gain in the preceding month. The S&P/Case-Shiller home price index increased 8.1% y-y in January, with all 20 cities registering gains.

In Singapore, manufacturing output declined 0.7% m-m sa in Feb, following the 9.1% contraction in the preceding month. Ex-BMS, manufacturing output also fell by 0.7% m-m sa. Specifically, the electronics cluster - which accounts for around a third of total manufacturing output- continued to slump by 14% y-y 3mma in Feb, compared to 8.6% contraction in the preceding month.

In France, consumer confidence index fell from to 84 in Mar from 86 in Feb, indicating a weakening consumer sentiment. The French economy has barely grown for about two years and President Francois Hollande is struggling to revive growth and contain unemployment, which has surged to a 13-year high in the wake of Europe’s debt crisis.

In South Korea, GDP grew by 0.3% q-q in 4q12, after staying stagnant in 3q12. Final consumption rose by 0.5% q-q in 4q12, after it advanced 0.8% q-q in 3q12. Investment rose by 0.3% q-q, after it fell by 2.1% q-q in 3q12. Exports fell by 1.1% q-q in 4q12, after the 1.9% q-q gain in 3q12. The reported growth has marked the slowest pace since the global recession, underscoring the case for stimulus by the new government and concern that a weaker yen will curb the nation’s exports. The central bank is currently holding the benchmark rate at 2.75%, and the weak economic data is likely to motivate the central bank to cut the rate by 25 basis points.

Regional Market Focus

Singapore

• The benchmark STI closed marginally higher to 3,288.53 (+0.64%). The 3.7bn shares traded were worth S$1.3bn in value.
• Among the STI components, HK Land and Genting Singapore rallied strongly by 6.2% and 3.1% respectively. In a latest update, Hutchinson Port Holdings Trust (HPHT) would be replacing Fraser and Neave in the STI from the start of trading on 3rd April.
• 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 stock market unexpectedly staged a sharp rebound, led by big-capped stocks in ICT, bank, property, and automotive. Meanwhile the weakening baht which mitigated nervousness about an intervention added to the positive sentiment.
• Thai bourse extended its sharp rebound over the past two days, partly driven by the issuance of trigger funds and upbeat US home and manufacturing data, sending the Dow higher. The SET index today is likely to continue trading in the positive territory but sporadic bout of selling pressure would emerge. Meanwhile, an increase of the level of collateral in the margin accounts to 20% will come into effect from May 2 onwards while the Parliament will vote on Bt2trl borrowing bill this Friday. On external fronts, the market remains concerns over long-term fiscal health in the EZ, though Cyprus finally reached the bailout deal. Under the circumstances, the strength in the SETI would be capped at certain extent.
• The short-term strategy is to be selective in stocks.
• Today we peg resistance for the SET index at 1553-1570 and support at 1533-1524.

Indonesia

• Asian markets mostly fell on Tuesday after a top euro zone official suggested a levy on bank deposits used as part of the Cyprus bailout could be a template for future rescues in the troubled region.
• The Jakarta Composite Index rose 0.89 percent, or 42.86 points, to close at 4,842.52. (Source: Jakarta Globe)

Sri Lanka

• Market closed for Medin Full Moon Poya Day.

Australia

• The Australian share market on Tuesday closed lower as markets worldwide were spooked by comments by the Dutch finance minister over the Cyprus bailout. At the close on Tuesday, the benchmark S&P/ASX200 index was down 40.0 points to 4,950.2 points.
• Today the Australian market looks set to open higher, with Wall Street more than 100 points up. The SFE Futures 200 is pointing upwards 23 points or 0.46 per cent to 4,979.
• In economics news on Wednesday, the Reserve Bank of Australia is due to publish its latest financial stability review, which looks at the current condition of the financial system.
• In equities news, QBE Insurance is scheduled to hold its annual general meeting and Hills Holdings will give a market update Market news Australia.

Hong Kong

• Local stocks swung between gain and loss. The HSI and HSCEI rose 59 points and dropped 52 points to 22311 and 10925 respectively. Market volume was 64.10 billion.
• We believe the market is going to consolidate on the 22000 points level, 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

Chuan Hup Holdings Limited said that its subsidiary, Provest Transworld Limited, prematurely terminated its leases at Jalan Samulun. Provest has signed a letter of acceptance of terms and conditions from Jurong Town Corporation for the premature termination. It will pay an administrative fee of S$1,070 for the lease termination of leases, though there is no penalty for such termination. The company said it had terminated the leases because it was unable to secure a new tenant or sell the property. It also has no use for the property, and it would have cost S$742,400 to hold the property until the leases expired. (Closing price: S$0.270, -%)

Eastern Holdings said on Tuesday that it would pump S$9.99 million into Hong Kong-based Schroder Asian Asset Income Fund. The investment in Asian equities and Asian fixed income securities would provide income and capital growth over the medium to longer term, EHL said. "The company currently has dormant funds in its corporate accounts and desires to obtain a more favourable return on the dormant funds," the firm added. (Closing price: S$0.193, -1.026%)

Olam International has opened an almond hulling and processing plant in Victoria, South Australia. The plant, which costs A$60 million (S$78 million), will have a total capacity of 40,000 metric tonnes of almond kernels a year, the firm said in a press release. It will de-hull and shell 14 tonnes of almonds an hour and employ about 19 permanent staff once in full production. The plant will help the agri-commodities trading house meet all the volumes of its upstream orchards, said Olam's Australia executive director and country head, Bob Dall'Alba. The firm is also exploring the option to use almond hulls to create renewable energy, it said. (Closing price: S$1.725, -0.289%)

Source: PhillipCapital Research - 27 Mar 2013