Morning Market Commentary

- STI: -0.24% to 3299.8                                       - SET: -2.55% to 1489.5
- JCI: +0.07% to 4926.1                                      - KLCI: +0.01% to 1688.7
- HSCEI: -3.06% to 10429                                 - Hang Seng: -2.73% to 21726.9
- Nikkei 225: +1.58% to 12833.6                      - ASX200: -0.45% to 4891.4
- India NIFTY: -0.39% to 5553.3                        - S&P500: -0.43% to 1553.3

MARKET OUTLOOK:
By Joshua Tan, Head of Research

The mighty BOJ’s thunder has been overshadowed by the lowly bird flu – investors might recall how devastating the 2002 bird flu was to lives and the stock market. Whatever bullishness we may have had last weak has taken a beating. The S&P500, the Nikkei, HSCEI, Hang Seng, SET, JCI, all have put in short term bearish signals here and there, the most resilient looking actually is the STI.

To add to the misery, US non-farm payrolls at 88k jobs added was way below economists 190k expectations. We would like to add though that Jan and Feb saw data revised higher by 61k, so the March miss is not as large as first glance: a miss of 41k jobs (190k – 61k – 81k), rather than 102k (190k – 88k) jobs. As new orders, housing are all humming along, we will warn that the current economic pause is likely to give way to a stronger 2H than 1H.

Nonetheless the S&P500 has put in a bearish divergence which suggests the downside as the more likely scenario in the short term.

The Nikkei has put in an ominous rejection candle, so there too, the short term downside is suggested.

The HSCEI and the Hang Seng are both still bearish in the short term.

The SET has both bearish candlestick price action and bearish momentum. Thai Equity Strategist however does not envision selloffs stronger than 10%.

The JCI has put in a bearish divergence which suggests the downside as well.

The STI however, remains the most bearish free signals. How long this can last though is anyone’s guess, in the face of global equity weakness. We wonder if the STI might again be exhibiting safe haven status.

(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, payrolls grew by 88,000 in Mar, the smallest increase in the past nine months, after a revised 268,000 gain in Feb, while unemployment rate dropped to 7.6% (mainly due to more people leaving the job search), the lowest since Dec 2008, after Feb’s 7.7%. The inability to sustain bigger gains in hiring and wages would motivate the Federal Reserve to maintain its record monetary policy stimulus.

In Euro zone, retail sales fell by 0.3% m-m in Feb, after the 1.2% m-m gain in Jan. On y-y basis, retail sales fell by 1.4% y-y, compared to the 1.3% y-y drop in Jan. In Germany, Euro zone’s biggest economy, factory order rose by 2.3% m-m in Feb, beating the market expected 1.1% m-m gain and reversing the 1.9% m-m drop in Jan. On y-y basis, the reading is stagnant, compared to a 2.5% y-y drop in Jan. While the euro area remains mired in recession, the German economy probably found its way back to growth in the first quarter after a 0.6 percent contraction in the last three months of 2012. Retail sales unexpectedly rose in February and the jobless rate remained close to a two-decade low.

In Malaysia, exports fell by 7.7% y-y in Feb, exceeding the market expected 4.8% y-y drop, compared to a 3.5% y-y gain in Jan. Imports fell by 4.4% in Feb, compare to the market expected 3.5% y-y gain and prior 16% y-y gain in Jan. Shipments were lower for electrical and electronics products, crude petroleum and palm oil; exports to China, Japan, U.S. and Singapore fell. The outlook for exports is likely remain weak and might improve in the second half of the year.

In Philippines, inflation slowed slightly to 3.2% in Mar, the lowest reading since Jan, after the 3.4% reading in Feb. Core CPI grew by 3.8%, the same pace as Feb. The central bank is holding the benchmark interest rate at 3.5%. The eased inflation allows the central bank more score to lower its benchmark rate further.

Regional Market Focus

Singapore

• The benchmark STI closed marginally lower to 3,299.78 (-0.24%). The 3.2bn shares traded were worth S$1.5bn in value.
• We initiate coverage on Cordlife Group with Buy recommendation at TP of S$0.84. Our analyst is optimistic on its earnings growth outlook and strong FCF to sustain dividend payout.
• 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 market will be closed for public holiday.

Indonesia

• The Jakarta Composite Index (JCI) edged up on Friday (05/04), in a mixed trading day for Asia after the Bank of Japan announced its stimulus plan, and before the release of US employment data. The JCI added 3.457 points, or 0.07%, at 4,926.068, supported by only 3 of the 9 major sectors. Construction, property and real estate sector surged 1.32%, financial sector gained 0.93%, and consumer goods sector rose 0.45%. The LQ45 index added less than 1 point, at 830.661, with 21 of the 45 blue-chip components finished in green. 130 shares advanced, 134 shares declined, and 209 shares stayed unchanged Friday on the Indonesia Stock Exchange, where 4.608 billion shares worth IDR 4.76 trillion traded on the regular board. Indonesian Rupiah shed 4 points, or 0.04%, at 9,758 against the US dollar. 10-year government bond yield rose 1.4 basis points to 5.540. Foreign investors accumulated net purchases of stocks, totaled at IDR 71.25 billion.
• The Jakarta Composite Index (JCI) will likely trade higher today, as sentiments turned positive in Asia this morning following weakening Yen. We expect the JCI to trade higher, with support and resistance at 4,886 and 4,968.

Sri Lanka

• The Colombo bourse ended the last trading day of the week on a mixed note resulting indices to close on different spaces. The Benchmark ASPI closed positively for the 3rd successive trading day at 5,765.94, gaining 12.38 points or 0.22%, however, the S&P SL20 Price Index ended on red terrain at 3,312.53 losing 6.48 points or 0.20%, having surged positively for 3 consecutive trading days. The market capitalization as at the day’s closure stood at LKR 2.21Bn recording a gain of 2.03% year to date and the market PER(X) and PBV(X) stood at 15.56 and 2.12 respectively. The turnover value for the day accumulated to LKR 634.24Mn indicating a drop of 61.53% against the previous trading day. BFI and DIV (Diversified Holdings) stood out at the top under the sectorial summary contributing LKR 418.55Mn and LKR 69.20Mn respectively. A total of 23.86Mn shares were traded during the day resulting in a decrease of 37.16% compared to the previous trading day. Foreigners appeared to be bullish during the day for the 5th successive trading day resulting in a net foreign inflow of LKR 155.65Mn while extending the year to date net foreign inflow to record LKR 5.82Bn.

Australia

• The Australian share market closed lower on Friday with the benchmark S&P/ASX200 index falling 22.1 points to 4,891.4.
• Today (08/04/2013), the Australian market looks set to open flat following weak US employment figures late last week.
• Locally, on the economic news front for Monday, the ANZ releases its job advertisements figures for March and the Housing Industry Association and Australian Industry Group will release their index  on construction activity for March.

Hong Kong

• Local stocks slumped. The HSI and HSCEI dropped 610 points and 329 points to 21726 and 10429 respectively. Market volume was 77.22 billion.
• We believe the market is going to consolidate on the 21300 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 21300 level, major resistance will be 22000 level.

Morning Note

Company Highlights

Ascendas HTrust announced that it has entered into a conditional sale and purchase agreement with Parksing Property Pte Ltd on 5 April 2013 to acquire Park Hotel Clarke Quay located at 1 Unity Street, Singapore, at a purchase consideration of S$300.0mn. The purchase consideration is 2.6% lower than the independent property valuation of S$308mn by Colliers International Consultancy & Valuation dated 31 March 2013. (Closing price: S$1.020, -0.488)

ISDN Holdings signed a Memorandum of Understanding (MOU) with China Huadian Engineering Co., Ltd (CHD). The two companies, ISDN Investments Pte Ltd, a wholly-owned investment holding arm of ISDN Holdings Ltd, and China Huadian reached an in-principle agreement to collaborate on energy-related projects in South-east Asia. ISDN recently announced plans to construct a 10 MW mini-hydropower plant in Indonesia in line with the Group’s diversification efforts. (Closing price: S$0.870, +29.851%)

Chew’s Group Limited announced that Planning Permission has been granted by the Urban Redevelopment Authority to its wholly-owned subsidiary, Chew’s Agriculture Pte Ltd (“CAPL”), under Section 14(4) of the Planning Act (Cap 232 1998Ed), pursuant to our application to construct a biogas plant at our current operating premises at 20 Murai Farmway. CAPL had on 26 March 2013, awarded the engineering, equipment supply and installation of the anaerobic digestion system for the Biogas Project to Anaergia Pte Ltd., a wholly-owned subsidiary of Anaergia Inc. The detailed design of the Biogas Plant has commenced and upon completion, will be submitted to the Building and Control Authority for approval. Upon receipt of approval from the BCA on the Design, the construction of the Biogas Plant will commence. The estimated length of construction is expected to take about nine (9) months. (Closing price: S$0.240, -2.041%)

United Fiber System Ltd announced that the High Court of the Republic of Singapore has granted the application by the Company’s subsidiary, Poh Lian Construction (Pte.) Ltd (“PLC”), to place itself under judicial management, and appointed Mr. Tam Chee Chong and Mr. Andrew Grimmett, both of Deloitte & Touche LLP, as the judicial managers of PLC. Pursuant to Section 227B(8) of the Companies Act (Cap. 50), the Judicial Management Order shall, unless it is otherwise discharged, remain in force for a period of 180 days from the date of the said order. Shareholders of the Company are advised to exercise caution in trading their shares in the Company and the Company will make the necessary announcements when there are any material updates on the above matter. (Closing price: S$0.021, unchanged)

Olam International decided to discontinue the pending legal action against Muddy Waters and Carson Block related to comments made at the Sohn London Investment Conference on November 19, 2012. The Notice of Discontinuance was filed today in the High Court of Singapore. While Olam has been able to serve notice on Muddy Waters, it has been unsuccessful in serving Carson Block despite its best efforts. In addition, after several months of investigation, no assets of consequence have been identified for either party against which claims can be made. After considering feedback received from several of its shareholders, Olam has decided it should now move forward and focus resources and management attention to deliver value for its continuing shareholders and other stakeholders. (Closing price: S$1.665, -0.299%)

Source: PhillipCapital Research - 8 Apr 2013