Morning Market Commentary

- STI: +0.75% to 3313.03                               - SET: +1.09% to 1560.9
- JCI: +1.77% to 4928.1                                 - KLCI: +0.89% to 1667.6
- HSCEI: +0.99% to 11033.6                         - Hang Seng: +0.69% to 22464.8
- Nikkei 225: +1.08% to 12493.8                   - ASX200: -0.28% to 3367.3
- India NIFTY: +0.14% to 5641.6                    - S&P500: -0.06% to 1562.9

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Today, Cypriot banks re-open. And markets (including US markets which ended flat yesterday) will be paying close attention on that front. Already, the fx market is not too optimistic with EUR/USD breaking below key support of 1.28 and renewed selling pressure could see the EUR/USD test the Nov 2012 low of 1.2657. Capital controls are enacted and we reckon it is likely to stay there for a long time (as was in the case of Iceland). Cyprus is also on the brink of a potential credit rating downgrade. Specifically, FitchRatings has placed its credit rating on Cyprus on watch for a potential downgrade from its current B rating after S&P downgraded Cyprus’ credit rating by one notch to CCC last week.

Note the black swan event lingering at the backdrop. Admittedly, though not entirely an unknown unknown. Geopolitical tensions are heightened with Pyongyang's recent aggressive rhetoric escalating to putting its artillery forces on high alert. But markets have deemed North Korea’s threats to be empty and generally shrugged it off thus far.

In Singapore, the STI registered another bullish marubozu for the second consecutive day. STI is likely to challenge the 3320 resistance so long as it stays above key support at 3250.

The Nikkei 225 is confronted with strong resistance at the 12,500 level amid a tight consolidation range. For the Nikkei rally to continue, the bulls need to take the index across the 12,500 minor resistance level and the USDJPY need to resume its climb above the 95 level. Next major event risk will be BoJ’s 3rd – 4th April monetary policy meeting.

Downward bias for the HSI, HSCEI and CSI 300. Note the bearish pin bar as at yesterday’s close as well as the bearish short-term moving average cross over.

In Malaysia, the KLCI gapped up on Tues and surged higher as the 13th GE draws nearer. Market sentiment seemed to be cautiously bullish at this juncture.

Philippines' sovereign rating was upgraded to investment grade by Fitch on account of strong external balance as well as robust economic growth. Reckon S&P and Moody's are likely to follow suit soon.  In the near term, Philippines could see larger capital inflows as the upgrade opens up a pool of potential investors. But Philippines will be confronted with challenges such as managing a stronger peso as well as risks of an asset bubble if not managed prudently.  On balance, the market reaction is likely to be muted as the writing is already on the wall. Specifically, we raised the possibility of Philippines achieving investment grade as early as last year in our ASEAN macro strategy report. Since then, Philippines equities have already rallied quite a fair bit and govt bond yields have fallen below many other investment grade sovereigns (with dubious credit quality).

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

Macro Data:

In US, the pending home sales index slipped 0.4% sa m-m in Feb. But that should be seen as a minor pullback from the  3.8% increase in the preceding month. On the whole, the housing market recovery is still gaining traction.

In Euro zone, economic confidence fell to 90 in Mar, compared to the market expected 90.5 reading, after the 91.1 reading in Feb. The case is worsened by the concern over Cyprus. A gauge of sentiment among European manufacturers declined to minus 12.5 from minus 11.3 in February. An indicator of services confidence fell to minus 6.7 from minus 5.3, while consumer sentiment improved to minus 23.5 from minus 23.6. The euro-zone economy has contracted for five consecutive quarters, and the ECB sees the economy shrinking 0.5% in 2013. In Germany, the largest economy in Euro zone, consumer survey shows that a gauge for the nation’s consumer confidence remain unchanged in Apr at 5.9, the level it reached in Mar.

In UK, disposable income fell by 0.1% q-q in 4q12, marking a fall for 4th consecutive quarter, underlining the pressure on consumer spending. The revised data for GDP by expenditures shows that Business investment fell by 0.8% q-q in the quarter instead of the 1.2% q-q decline previously estimated, and that consumer spending rose 0.4 percent instead of 0.2 percent. Exports fell 1.6% and net trade contributed 0.2 percentage point of the overall decline in 
GDP, suggesting exporters are seeing little benefit from the pound’s decline. The economy is standing on the brink of another recession and hampering the government’s efforts to narrow the budget deficit.

In South Korea, consumer confidence rose to 104 in Mar, after the 102 reading in Feb, indicating an improving consumer sentiment. The weak Yen from Japan’s aggressive loosening is likely to continue weighing on South Korea’s exports, and we expect the bank of Korea to cut the benchmark rate by a 25 bps to 2.5% in the near term.

Regional Market Focus

Singapore

• The benchmark STI closed above the psychological resistance level of 3,300 to 3,313.03 (+0.75%). The 3.1bn shares traded were worth S$1.7bn in value.
• Our analyst reiterated his positive view on PLife REIT (Accumulate, TP: S$2.45) and found the S-REIT sector’s dividend yield and spreads as attractive relative to other developed REIT markets. Prior to market opening, Keppel Corp. (Accumulate, TP: S$12.38) announced that its Offshore & Marine division clinched a contract worth US$820mn for the construction of four jackup rigs.
• 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 winning streak for a third straight session on Wed on better-than-expected economic data from the US and buying orders from the newly launched trigger funds.
• Even though Thai stocks staged a strong rebound after last week’s steep correction driven by institutional end-of-quarter window dressing, buying orders from the newly launched trigger funds and return of foreign buying, we however believe the absence of strong positive catalysts in the near term may leave the market vulnerable to volatility triggered by more bouts of short-term profit taking. For the meantime, the market’s focus remained on Europe’s debt crisis, especially the reopening of Cyprus banks today and Italy’s political stalemate, which dampened investment confidence and pushed up bond yields. In Thailand, the parliament will begin debate on the Bt2trn infrastructure development loan bill today while the resurgence of the baht’s strength may likely pile more pressure on the Bank of Thailand’s Monetary Policy Committee at its meeting next week. 
• The short-term strategy is still to be selective in stocks. Investors may raise equity holdings back to 50% of the short-term trading portfolio if the composite SET index closes above 1550. 
• Today we peg resistance for the SET index at 1570-1586 and support at 1553-1540.

Indonesia

• Indonesian stocks extended rallies Wednesday (27/03), bringing the Jakarta Composite Index (JCI) to a new record high, amidst positive sentiments in Asia and supported by earning reports from listed companies in Indonesia. The JCI ended at 4,928.102, up 85.583 points, or 1.77% for the day. The advance on Wednesday was supported by gains in all major industry groups, led by financial sector that surged 2.47%, followed by miscellaneous industry sector and consumer goods sector with gains of 2.24% and 1.99% each. The LQ45 index rose 15.567 points, or 1.90%, to close at 834.411, with 33 of the 45 blue-chip stocks finished in green. For every stock that declined, more than two advanced Wednesday on the Indonesia Stock Exchange, where 6.74 billion shares valued at IDR 7.08 trillion traded on the regular market. Foreign investors posted net purchases of IDR 624.09 billion.
• The Jakarta Composite Index will likely turn lower today, retreating from 3-day rallies, as global leads pointed to negative zone this morning. We expect the Jakarta Composite Index to trade with support and resistance at 4,829 and 4,978 respectively.

Sri Lanka

• The Colombo Bourse ended the second trading day of the week on a mixed note; following the negative closures recorded on previous trading day. The market displayed flat movements throughout the day and indices were floated in between both spaces.
• Lack of participation of the investor segments were witnessed throughout the day and the benchmark ASPI index lost tiny 0.56 points or 0.01% to close the day at 5,744.99; however, the S&P SL20 price index closed within the green terrain at 3,299.87 having gained 3.91 points or 0.12%.
• The market capitalization as at the day’s closure stood at LKR 2.21Tn resulting in a year to date gain of 1.89% and the market PER and PBV stood at 15.54 and 2.12 respectively. The turnover for the day totaled up to record LKR 938.05Mn indicating a significant increase of 165.41% against the previous trading day.
• Diversified Holdings (DIV) sector emerged as the top contributor for the day under the sectorial summary having provided LKR 413.02Mn which accounts to 44.03% of the daily aggregate turnover. Bank Finance & Insurance (BFI) sector stood next to that providing LKR 349.26Mn, capturing high investor attractions during the day with 1754 trades out of the aggregate 4524 trades.
• Furthermore, the two sectors DIV and BFI collectively made an 81.26% subscription to the daily aggregate turnover. A total of 17.76Mn Shares changed hands resulting in an increase of 38.56% against the previous trading day. Price losers outperformed the price gainers by 105:75.
• Foreigners appeared to be bullish during the day for the sixth successive trading day resulting in a net foreign inflow of LKR 408.17Mn, while extending the year to date net foreign inflow to record LKR 4.95Bn.
• Further, the inflows recorded during the past 6 trading days aggregated up to nearly LKR 1.2Bn. In regard to the local FOREX market, the USD closed the day at LKR 128.40/- selling and LKR 125.25/- buying.

Australia

• The Australian share market on Wednesday closed almost one per cent higher as investors took their cues from positive news in the US. At the close on Wednesday, the benchmark S&P/ASX200 index was up 44.8 points to 4,995.0.
• Today (28/03/13), the Australian market looks set to open lower, following Wall Street’s overnight lead. The SFE Futures 200 is pointing downward 17 points or 0.33 per cent to 4,987.
• In economics news on Thursday, data scheduled for release include TD Securities/Melbourne Institute inflation gauge for March and Australian Bureau of Statistics job vacancies for the three months to February. The Reserve Bank of Australia is due to release its financial aggregates for February.
• In equities news, surfwear retailer Billabong will reach its deadline to decide on two takeover bids.
• The Australian share market will be closed for Good Friday and Easter Monday and will re-open on the 02/04/13.

Hong Kong

• Local stocks rallied. The HSI and HSCEI rose 154 points and 108 points to 22465 and 11033 respectively. Market volume was 63.36 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

First Reit said it is looking to acquire two new hospitals in Indonesia for S$190.4 million. The reit has entered into conditional sale and purchase agreements with subsidiaries of its sponsor, PT Lippo Karawaci Tbk, to buy Siloam Hospitals Bali (SHBL) and Siloam Hospitals TB Simatupang (SHTS) for S$97.3 million and S$93.1 million respectively. First Reit will finance the purchase of SHBL entirely by a drawdown of committed debt facility, while SHTS will be paid for using drawdown of committed debt facility as well as issuance of new units to its sponsor, PT Lippo Karawaci Tbk. The reit has also signed master lease agreements with PT Lippo Karawaci Tbk, also the master lessee of both properties, for lease terms of 15 years, with an option to renew for a further term of 15 years. (Closing price: S$1.725, -0.289%)

Nam Cheong Limited has secured US$72.1 million in sales contracts, bringing its order book to RM1.3 billion (S$521 million). Secured by its wholly-owned subsidiary Nam Cheong International Ltd, the contracts are for two units of anchor-handling, towing supply vessels and four units of emergency-response and rescue vessels. The vessels were sold to two of its existing customers and are scheduled for delivery between the second quarter of this year and the fourth quarter of next year. The contracts are expected to contribute positively to the earnings of the group for the financial years ending 2013 and 2014. (Closing price: S$1.725, -0.289%)

RH Energy has taken the next step in its reverse takeover plans. Following its January announced "non-binding memorandum of understanding (MOU)", it has entered into a sale and purchase agreement to acquire Chinese property developer, Chiwayland Group (Singapore) Pte Ltd from Sinway Investment. The oil and gas equipment company has also entered into a definitive disposal agreement to dispose all its existing business to shareholder Petchem Holdings for S$36 million, which translates into a loss on disposal of about S$4.7 million, it said. Its existing subsidiaries include: R H Energy (HK) Limited; Zoneda Energy Ltd; R H International Pte Ltd; Greenzone Energy Pte Ltd; and a 70 per cent stake in Amersun Energy Pte Ltd. (Closing price: S$1.725, -0.289%)

Source: PhillipCapital Research - 28 Mar 2013