Morning Market Commentary

- STI: -0.46% to 3284.6                                  - SET: -2.55% to 1489.5
- JCI: -0.58% to 4897.5                                  - KLCI: -0.04% to 1687.99
- HSCEI: +0.00% to 10429.8                         - Hang Seng: -0.04% to 21718.1
- Nikkei 225: +2.80% to 13192.6                   - ASX200: +0.41% to 3306.0
- India NIFTY: -0.19% to 5542.95                 - S&P500: +0.63% to 1563.1

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

The risk event this week will be the release of the March FOMC minutes this Thurs (2am SGP time). Apart from the weaker-than-expected March jobs data, we are concerned about the decline in labour force participation rate to its lowest level since 1979. Thus, even though unemployment rate (one of the benchmarks for Fed’s LSAPs) has inched down, the economy has not yet come up to speed. This is likely to result in a divergence of expectations between the Fed and markets. Market are now concerned about an early withdrawal of LSAPs and  policy tightening, something that might not be on the top of the Fed’s minds right now. Scrutinise the wording of the March FOMC minutes for greater clarity on this front.

In the US, S&P 500 and DJIA inched up higher on Mon. Alcoa (a bellwether of economic activity)  kicked off the US earnings season after the closing bell, reporting better-than-expected 1q2013 earnings. But lower-than-expected revenue and an insipid outlook (as indicated in its investor presentation)  are likely to weigh on market sentiment.

Mrs Watanabe has likely hopped onto the bandwagon and is trying to ride on the re-invigorated Nikkei rally. Looking ahead, while we are cognisant of the structural challenges confronting the Japanese economy, we think the Nikkei rally still has legs (in the near term). Specifically, the recent monetary easing under the new BoJ leadership led by Kuroda topped market (and our) expectations. And the USDJPY has responded vigorously, printing bullish daily candlesticks since Thurs and is just a whisker away from the psychological 100 level at the open of Tokyo session today. So long as the USDJPY continues to march towards (better if it clears above) the psychological 100 level, the Nikkei will continue to soar (notwithstanding minor pull backs along the way).

In Greater China, expect near-term weakness on the HSI, HSCEI as well as CSI300 on account of (i) all 3 indices (especially the former two) continuing to hug the lower bollinger band (ii) bearish short-term moving average cross over and (iii) concerns over the ongoing bird flu. Major risk events for China this week: inflation data today (9 Apr) and trade data tomorrow (10 Apr).

Then, there is the black swan event lingering at the backdrop. Geopolitical tensions are heightened with Pyongyang's recent aggressive rhetoric escalating to putting its artillery forces on high alert and now it is ratcheted up another notch with Pyongyang suspending Kaesong Operations.

Expect jitteriness in the STI in the near term, partly on account of developments unfolding on the China as well as North Korea fronts (as detailed above). Still, we are cautiously optimistic that the STI will likely challenge the 3320 resistance (followed by the psychological 3400 hurdle) so long as it stays above key support at 3250.

Will the incumbent Barisan Nasional (BN) re-claim a strong mandate at the upcoming elections? In Malaysia, the 13th General Elections is drawing near. With Parliament dissolved last week, elections are likely held end April, latest 28th May.  Markets have priced-in the ruling coalition, Barisan Nasional (BN) retaining a simple majority. Do note that Malaysia’s resilient domestic demand driver would not fundamentally change overnight, even if the opposition garners an outright victory. In fact, uncertainties that result from this pull back can be perceived as opportunity to enter the market. We might upgrade Malaysia (KLCI) from MW to OW if BN gathers a strong mandate. A strong mandate would qualify as a two-thirds majority in Parliament (necessary to pass through any legislation it deem fit) -which BN lost in the recent 2008 watershed elections. In the event that the incumbent Barisan Nasional fail to re-claim a strong mandate, the Economic Transformation Program and Government Transformation Program -major pillars of the domestic demand story- may be confronted with headwinds.

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

Macro Data:

In Taiwan, inflation slowed down to 1.39% y-y in Mar, compared to the market expected 1.82% pace and the revised 2.96% reading in Feb. The eased inflation would enable the central bank to leave the benchmark interest rate at the current low level of 1.88%. A separate report shows that the island’s exports rose by 3.3% y-y in Mar, compared to a market expected 2.2% y-y gain and the 15.8% y-y drop in Feb. By trading partners, exports to China rose by 5.2% y-y in Mar, compared to the 21.8% y-y drop in Feb due to the Chinese New Year timing. Exports to US fell by 1.9% y-y, compared to the 11.9% y-y contraction in Feb. The on-going mild recovery of China’s economy would continue lend support to Taiwan’s economy. (by Roy Chen)

In Germany, industrial production is still soft ytd (Jan-Feb). Specifically, industrial production gained 0.5% m-m in Feb, reversing from the 0.6% contraction in the preceding month. While manufacturing output  rose 0.4%m-m in Feb, it came on the back of a significant downward revision of 1.1% m-m decline in Jan. Nonetheless, ytd prints points to a gradual recovery in 1q13 as compared to 4q12 which registered a contraction of 10%q-q saar. We expect Germany to continue to outperform the rest of the EZ. (by Ng Weiwen)

Regional Market Focus

Singapore

• The benchmark STI closed marginally lower to 3,284.61 (-0.46%). The 3.7bn shares traded were worth S$1.4bn in value.
• The top active stocks include GLP(+3.02%), Kep Corp (-0.89%), Wilmar (-2.36%), Capitaland (-1.15%), and ISDN (-4.02%).
• 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 stocks tumbled nearly 40 points to 1,489.53 points last Fri as domestic political worries and bird flu outbreak in China gave investors an excuse to take profits after a recent market rally.
• Thai stocks are likely to remain in a choppy consolidation mode today. However, last Fri’s sharp sell-off may set the stage for some rebound but we believe any gains will be limited amid heightened tension in the Korean Peninsula and Europe’s debt crisis. Foreign selling spree continued in the Thai stock market to the tune of nearly Bt9bn over the last three sessions. Last Fri, net foreign selling of Thai shares topped Bt3.9bn last Fri.
• The Thai baht appreciated rapidly to 29.15 per US dollar this morning (0755 hrs Thailand time). The rapid strength of the baht may increase calls for additional measures to stem the currency’s rise.
• Today we peg resistance for the composite SET index at 1500-1520 and support at 1480-1464.

Indonesia

• The Jakarta Composite Index (JCI) dropped a significant amount of points on Monday (11/04), ahead of the central bank meeting on Thursday (11/04) that spurred concerns that the meeting may result in an interest rate hike, in an attempt to keep inflation low. The JCI shed 28.547 points, or 0.58%, to close at 4,897.521. The decline included seven of the 9 major industry groups, with consumer goods sector dropped 1.12%, construction, property and real estate sector fell 1.09%, and financial sector lost 1.05%. The LQ45 index trimmed 5.198 points, or 0.63%, at 825.463, with 25 of its 45 blue-chip components ended in red. As many as 171 shares declined, 103 shares advanced, and 199 shares remained unchanged Monday on the Indonesia Stock Exchange, where 4.481 billion shares worth IDR 4.624 trillion traded on the regular board. Foreign investors accumulated net sales of IDR 930.60 billion.
• Indonesian stocks will likely to rebound today, spurred by buying opportunities after a plunge on Monday (08/04), and as sentiments in markets globally turned positive. We expect the Jakarta Composite Index (JCI) to trade higher, with support and resistance at 4,839 and 4,964 respectively.

Sri Lanka

• The Colombo Bourse ended the 1st trading day of the week on an optimistic note aiding the indices to close within the green region. The benchmark ASPI index ended the day at 5,777.38 within the green territory for the 4th successive trading day after gaining 11.44 points or 0.20%. The S&P SL20 price index too closed green at 3,321.81 having gained 9.28 points or 0.28%; this followed the negative closure seen during the previous trading day. As at the daily closure the market capitalization stood at LKR 2.22Tn resulting in a year to date gain of 2.23% and the market PER and PBV stood at 15.59 and 2.13 respectively. The turnover for the day amounted to LKR 398.05Mn indicating a decrease of 37.24% against the previous trading day, this was the lowest turnover recorded after the 25th of March 2013. During the day investor attractions were vastly on Bank Finance & Insurance (BFI) sector with 2,416 trades out of the total 6,551 trades been recorded, hence assisting BFI emerge as top contributor under the sectorial summary having provided LKR 179.13Mn which accounts to 45% of the daily aggregate turnover. Diversified Holdings (DIV) providing LKR 77.86Mn stood next to BFI under the sectorial summary. Moreover the two sectors BFI and DIV collectively made a 64.56% contribution to the day’s aggregate turnover. A total of 20.20Mn Shares changed hands resulting in a drop of 15.34% against the previous trading day. Price gainers surpassed the price losers by 122:74. Foreigners appeared to be bullish during the day for the 6th successive trading day resulting in a net foreign inflow to record LKR 34.87Mn, while extending the year to date net foreign inflow to LKR 5.85Bn. With regard to the local FOREX market, the USD closed the day at LKR 127.25/- selling and LKR 124.21/- buying.

Australia

• The Australian share market closed higher on Monday, the benchmark S&P/ASX200 index gained 14.1 points to 4,905.5.
• Today, the Australian market looks set to open stronger after gains on Wall Street.  The SFE Futures 200 is pointing upwards 33 points or 0.67 per cent to 4,944.
• In economic news on Monday, the NAB monthly business survey for March is due out and the Australian Bureau of Statistics will release its figures for overseas arrivals and departures.

Hong Kong

• Local stocks swung between gain and loss. The HSI and HSCEI dropped 8 points and rose 0.4 points to 21718 and 10429 respectively. Market volume was 58.06 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

XinRen Aluminum Holdings Limited announced that the Company’s external auditors, Ernst & Young LLP, has issued an Auditors’ opinion with emphasis of matter(s) on the Company’s financial statements for the year ended 31 December 2012. A copy of the Auditor’s report is annexed to the announcement. (Closing price: S$0.300, unchanged)

Shanghai Asia Holdings Limited announced that the external auditors, KPMG LLP has an emphasis of matter in the Independent Auditors’ Report of the financial statements of the Company and its subsidiaries for the financial year ended 31 December 2012. A copy of the Auditors’ report together with Notes 2.2, 5, 19 and 24 of the financial statements is annexed to this announcement. (Closing price: S$0.099, +1.020%)

World Precision Machinery Limited said it has recently won three orders with an aggregate value of RMB11.34 million. The new contracts include the Group’s largest overseas order with a total worth of RMB7.17 million from an Indonesia car manufacturer, comprising the delivery of 4 high-performance stamping machines from the JS36 model series. These high-performance stamping machines will be used in automobile production line. This will be the first time for the Group’s equipment to be used by an overseas automobile manufacturer and this reflects the “World” brand competitiveness in the stamping machine industry. The remaining two orders include RMB2.05 million from Nanhai Honggang Machinery Co., Ltd., an elevator manufacturer located in Foshan City, Guangdong Province; and RMB2.12 million from Liuzhou Yongle Electromechanical Equipment Co., Ltd., an auto parts and accessories manufacturer in Liuzhou City, Guangxi Province. (Closing price: S$0.440, +1.149%)

Global Logistic Properties Limited announced that it has pre-leased approximately 43,000 square metres in Suzhou and Wuhan to Best Logistics, one of China’s leading providers of third-party logistics with a focus on Business-to-Consumer distribution and last-mile deliveries. Following the signing of these two long-term lease agreements, Best Logistics now lease approximately 51,000 sqm across four locations with GLP in China. (Closing price: S$2.730, +3.019%)

Source: PhillipCapital Research - 09 Apr 2013