Morning Market Commentary

- STI: -0.42% to 3307.8                                       - SET: +0.52% to 1528.5
- JCI: -1.18% to 4922.6                                       - KLCI: +0.18% to 1688.5
- HSCEI: -0.49% to 10758                                 - Hang Seng: -0.14% to 22337
- Nikkei 225: +2.20% to 12634.5                      - ASX200: +0.12% to 4919.5
- India NIFTY: -1.73% to 5574.8                        - S&P500: +0.40% to 1559.9

MARKET OUTLOOK:
By Joshua Tan, Head of Research

The BOJ outdid expectations by 50%, as asset purchases would be 7.5tr Yen/mth, doubling the monetary base in 2 yrs, as such invalidating our fear of a “sell on news”, and confirmed so by the Nikkei punching through the 12500 resistance. With JP econ indicators also getting more positive, looks like long Nikkei short Yen is back on after consolidating around 12500. Next stop is 13500 for the Nikkei.

Slight correction on the STI to 3307 merely confirms again 3300 resistance is now support. No bearish crossover of the 20dma and 50dma suggests the move up is still on. We believe the uptrend is re-asserting itself again after a long consolidation at 3300. We like the chart pattern and would pick this index for building long trading positions.

Weak unemployment claims yesterday raised some headline news concerns of US expansion. But taken in perspective, the 4wk MA of UI claims is getting lower, so we won’t worry about a single week’s claims. Overall new orders are rebounding suggesting a stronger 2H than 1H. Tests of the 20dma are quite normal for the S&P500’s uptrend in the past.

China A shares and H shares are still in correction mode from the real estate and shadow banking curbs, but the HSCEI seems to be regaining footing as compared to the CSI300. The Hang Seng on the other hand has started to post a modest uptrend to regain ground from the correction, momentum is building. We are still OW China-HK equities since we upgraded in Oct12 last year, principally because despite the problems in real estate and shadow banking risk, we do not think these risks will come home to roost in 2013 (maybe 2014/15?) due to the change in leadership, which at the same time promises catalytic structural reform.

Global manufacturing is holding up well, with the US, China, Japan and Asia posting expansionary data points. EZ however remains mired in contraction. Inflation may be a concern this year for ASEAN as many countries are running wage inflationary policies not in line with productivity gains. We continue to be overweight equities, marketweight bonds, marketweight commodities, underweight gold for 2013.

(All equity indices mentioned in this note are tradable with Phillip CFDs or ETFs – see Global Macro Asset Strategy reports; As for stocks/sectors in focus please see our Equity Strategy reports)

Macro Data:
(By Roy Chen)

In US, jobless claims unexpectedly rose by 28,000 to 385,000 in the week ended March 30, the highest since Nov 24, while the market was earlier predicting a drop to 353,000. We expect the nation’s open-ended QE to continue in the foreseeable future as the Federal Reserve Chairman Ben Bernanke and his colleagues reiterated March 20 they will press on with monetary easing until the labor market outlook improves “substantially.”

In Euro zone, services PMI fell slightly to 46.4 in Mar, compared to 46.5 in Feb, still indicating a contraction in the region’s service sector. Services PMI in Germany fell to 50.9 in Mar from 51.6 in Feb, indicating a slower expansion, and services PMI in France fell to 41.3 from prior 41.9, indicating a faster contraction. The region’s composite PMI reported 46.5, unchanged from Feb, indicating a slowdown in the region’s overall business activities. A separate report shows that the region’s PPI grew by 1.3% y-y in Feb, after the 1.9% y-y gain in Jan, reflecting a faltering industrial production. The ECB decided to leave its benchmark interest rate unchanged at 0.75%, the record low, while the central bank governor Mario Draghi signals that ECB stands ready to ease policy if needed.

In UK, services PMI rose to 52.4 in Mar, compared to the market expected 51.5 and prior 51.8 readings. Bank of England decided to keep their 375 billion pounds asset purchase program on hold due to inflation concern. Meanwhile the benchmark interest rate is left unchanged at 0.5%. The nation’s inflation accelerated to 2.8% in Feb, above the central bank’s 2% target. This has eroded the central bank’s scope for loosening.

In Japan, Bank of Japan announced to purchase 7.5 trillion Yen of bonds per month and double the monetary base in two years. This exceeded the market expected 5.2 trillion yen per month and is the biggest move since quantitative easing began in 2001. The BOJ said it changed the target for money-market operations from the overnight call rate to the monetary base -- cash in circulation and the money that financial institutions have on deposit at the central bank. It predicts the measure will grow to 270 trillion yen by the end of 2014. The BOJ dropped limits on the maturities of debt it buys. The bold move will continue send yen declining which would help to bolster the nation’s exports and likely the overall economy as well.

In Australia, retail sales rose by 1.3% m-m in Feb, marking a second consecutive monthly growth, after the 1.2% m-m gain in Jan. Services PMI index rose to 49.6 in Mar, indicating a slower contraction in the nation’s service sector, compared to the 48.5 reading in Feb. A separate report shows that the nation’s building approvals rose by 3.1% m-m in Feb, marking the first monthly gain in 3 months, after the 2.0% m-n drop in Jan. In improving retail sales the earlier totaling 1.75 percentage points cut are gradually getting paid off. With inflation staying within the target range, the central bank still has scope for further cuts when needed.

Regional Market Focus

Singapore

• The benchmark STI closed marginally lower to 3,307.80 (-0.42%). The 2.9bn shares traded were worth S$1.1bn in value.
• The market seems to get excited by companies that can offer a Myanmar exposure. At the time of this writing, Yoma Strategic traded up 10% after announcing plans to jointly bid for a phone licence in the country. Amara Holdings also traded up 6% after announcing plans to develop a business hotel in Yangon.     
• 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.

• Thai stocks gained 7.94 points to 1,528.46 points on Thu. The composite SET index opened the day down nearly 40 points on worries over domestic political instability before it reversed course to the upside in the afternoon trade on easing political concerns.
• The composite SET index is likely to move back into a choppy range-bound trading pattern today but investors should watch out for possible bout of risk-aversion selling ahead of the long weekend holiday following yesterday’s heavy foreign sell-off with net sale of Bt3bn of Thai shares and net short positions of 2k contracts in futures. The strength of the US dollar after a drop in the Japanese yen on BOJ’s unprecedented degree of monetary easing sent commodity prices into a free fall, a factor that may put pressure on Thai energy shares today.   
• In our view, selective trading strategy makes sense for the Thai stock market at a time when the SET index trades in a sideways to sideways down pattern. Equity holdings should be maintained at 30% of the short-term portfolio until the main index could successfully close above 1540.
• Resistance for the composite SET index is seen at 1540-1564 and support at 1520-1500 today.

• The Jakarta Composite Index (JCI) plunged on Thursday (04/04), amidst mixed closes on stock markets in Asia. The JCI lost 58.855 points, or 1.18%, at 4,922.611. The decline included all 9 major industry groups, with miscellaneous industry shed 2.73%, infrastructure sector dropped 1.51%, and financial sector lost 1.48%. The LQ45 index fell 13.359 points, or 1.58%, to close at 830.132, with 33 of its 45 blue-chip components ended in negative territory. The Rupiah declined 9 points, or 0.09%, at 9,754 per US dollar. Indonesian government 10-year bond yield dropped 3.2 basis points, at 5.526%. More than 170 shares declined, 89 shares rose, and 212 shares stayed unchanged Thursday on the Indonesia Stock Exchange, where 5.379 billion shares worth IDR 5.568 trillion changed hands on the regular board. Foreign investors’ transactions accumulated to net sales of IDR 540.83 billion.
• The Jakarta Composite Index (JCI) may rebound today, after positive closes on US markets overnight that can provide positive leads to stock markets in Asia today. We estimate the JCI to trade higher with support and resistance at 4,889 and 4,987 respectively.

• The Colombo Bourse moves up further. The Bourse ended 4th trading day of the week on an encouraging note which resulted further accelerations of both the indices on green territory. The positive momentum was mainly derived through the banking rally and foreign participation to the banking counters were witnessed throughout the day. The benchmark ASPI index closed positively for the second consecutive trading day gaining 25.09 points or 0.44% to close the day at 5,735.56. The S&P SL20 price index too closed green for the third successive day at 3,319.01 having gained 13.74 points or 0.42%. The market capitalization as at the day’s closure stood at LKR 2.21Tn resulting in a year to date gain of 1.81% and the market PER and PBV stood at 15.53 and 2.12 respectively. Turnover for the day totaled up to record LKR 1.65Bn resulting in a notable increase of 77.03% against the previous trading day. Moreover, Bank Finance & Insurance sector (BFI) made a notable LKR 1.50Bn (91.09%) contribution to the total turnover largely backed by the above mentioned active counters and BFI sector alone recorded 3,855 trades to the total 6,721 trades demonstrating the attractiveness of fundamentally sound banking counters. A total of 37.98Mn Shares changed hands resulting in an increase of 74.74% against the previous trading day. Price gainers outpaced the price losers by 100:76; where Ceylon Leather Products PLC (W13) (42.11%) led the gainers, on the contrary Ceylon Printers PLC (-35.12%) led the price losers. Foreign participants appeared to be bullish during the day for the fourth successive trading day resulting in a net foreign inflow of LKR 17.27Mn, while extending the year to date net foreign inflow to record LKR 5.66Bn.In regard to the local FOREX market, the USD closed at LKR 127.96/- selling and LKR 124.91/- buying.

• The Australian share market closed lower on Thursday, with the benchmark S&P/ASX200 index falling 44.2 points, to 4,913.5.
• Today (05/04/13), the local market looks set to open lower despite off shore leads from Wall Street. The SFE Futures 200 is pointing downwards 21 points or 0.42 per cent to 4,891.
• In local economic news on Friday, the Australian Office of Financial Management will issue $600 million of April 2018 Treasury bonds.

• Local stocks swung between gains and losses. The HSI and HSCEI dropped 30 points and 52 points to 22337 and 10758 respectively. Market volume was 52.29 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

Hyflux has signed two memoranda of understanding (MOUs) to explore collaborations in Yunnan province, People’s Republic of China to develop water and environmental projects. The projects covered under the MOUs include the development of water recycling, wastewater treatment plants and potable water treatment plants as well as related infrastructure projects. The total investment value for the projects is estimated to be approximately RMB 3.2 billion. The MOUs are not expected to have a material financial impact on the Company for the financial year ending 31st December 2013. (Closing Price: S$1.415, -3.082%)

Amara Holdings has entered into a Memorandum of Understanding (“MOU”) to develop hotels and engage in other real estate projects in Myanmar, together with Youth Force Hotel Co. Ltd. and Youth Force Construction Co. Ltd. The first project that they will collaborate under the MOU involves establishing a Joint Venture to develop and operate a hotel located in Dagon Township, Yangon, Myanmar. The proposed total investment is estimated to be about US$50 million. (Closing Price: S$0.575, +5.505%)

Metro Holdings has entered into an option to sell the property at 100H Pasir Panjang Road, Singapore to OC Land Pte Ltd, an unrelated and independent party, for the price of S$39.8 million. The proposed disposal is expected to result in a net gain on disposal of approximately S$29.6 million after taking into account the book value of the Property of S$9.9 million and expenses. (Closing Price: S$0.910, -0.546%)

Source: PhillipCapital Research - 5 Apr 2013