Morning Market Commentary

- STI: +0.36% to 3296.6                                 - SET: -1.26% to 1470.7
- JCI: +0.04% to 4899.6                                 - KLCI: +0.14% to 1690.3
- HSCEI: +1.74% to 10610.8                         - Hang Seng: +0.70% to 21870.3
- Nikkei 225: -0.00% to 13192.4                   - ASX200: +0.57% to 3324.98
- India NIFTY: -0.86% to 5495.1                    - S&P500: +0.35% to 1568.6

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Upcoming key risk event will be the release of the March FOMC minutes this Thurs (2am SGP time). Markets 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 FOMC minutes for greater clarity on this front. But just to sound a note a caution,   this March FOMC meeting was conducted against the backdrop of a significant gains in non-farm payrolls (NFP) as well as  retail sales. Since then, the US economy has entered a soft patch with a pullback in NFP gains, deteriorating consumer confidence as well as weaker industrial production growth. Indeed, Tues release of the wholesale inventories data (where the change in inventories was dismal) reflects that risks to US 1q13 GDP growth are to the downside. So in a nutshell, do discount the possibly bullish tone struck in the March FOMC minutes in view of recent developments detailed earlier.

The S&P 500 and DJIA continued to inch up higher on Tues. Are markets complacent? 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 and now foreigners are urged by N Korea to leave Seoul. N Korea have raised the stakes too high that makes it impossible for it to back down from its threats credibly.

Buy (the Nikkei and Topix) on dips - in the near term. In Japan, the Nikkei slipped and ended broadly flat – likely on account of profit-taking as well as concerns with regard to Pyongyang black swan event. Pullbacks will serve as an opportunity to accumulate long positions in Japan (Nikkei, Topix). An escalation of the NK crisis will provide an excuse for the rally to pause. From a chartist point of view, minor pullbacks are inevitable with the Nikkei trading above the upper bollinger band.   Nonetheless, our base case is that so long as the USDJPY continues to march towards (better if it clears above) the psychological 100 level, the Nikkei will continue to rise higher. But What happens if the USDJPY crosses 100 and mounts a challenge for the 105 level? Will the Nikkei continue to run wild? More specifically, is Japan in a structural bull run? Not without structural reforms first on the macro front, we reckon.

In Greater China, the HSI, HSCEI as well as CSI300 bounced up – albeit slightly- from their lower bollinger band on softer-than-expected Chinese March inflation. But don’t expect the PBoC and Chinese government to relax their tightening stance in view of inflationary upside risks arising from the property sector as well as increased capital inflows. Looking ahead, the HSI and CSI 300 is confronted with strong resistance at the 22k and 2.5k level respectively while remaining in a bearish short-term moving average cross over. Watch out for the Chinese trade data today.

For Singapore, 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.

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

Macro Data:

In US, risks to 1q13 GDP growth are to the downside. Specifically, the wholesale trade report indicated that inventories declined by 0.3% in Feb while Jan data was revised downwards by 0.4%-pts to 0.8%. The US economy has entered a soft patch recently and we look to Fri’s retail sales data for greater clarity on this front (i.e. household consumption as well as retail inventories). (by Ng Weiwen)

In China, inflation eased to 2.1% in March, after the high level of 3.2% in Feb, which is mainly due to the CNY spending. The eased inflation has somewhat mitigated the concern that the central bank monetary policy might go tighter. However, the rising property price is still likely to hinder the PBoC to inject more liquidity. Therefore, we believe the monetary policy would remain more or less neutral for the near term.    (by Roy Chen)

In Japan, the preliminary reading for Machine Tool Orders fell by 21.6% y-y in Mar, marking a y-y drop of over 20% for fifth straight month. Domestic orders fell by 14.2% y-y in Mar, while foreign orders fell by 25.4% y-y. On m-m basis, the order has risen for a second consecutive month in Mar, by 11.8% m-m in Mar, after the 12.9% m-m gain in Feb. (by Roy Chen)

Regional Market Focus

Singapore

• The benchmark STI closed 11.96 points higher to 3,296.57 (+0.36%). There were 2.7bn shares traded worth S$1.2bn in value.
• The top active stocks include GLP(+1.10%), Singtel (+1.39%), Kep Corp (+0.54%), SPH (+0.44%), and DBS (+0.06%).
• 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 suffered wild swings on Tue. The composite SET index earlier rose 5-6 points before it reversed course to trade down nearly 20 points during the session and finished the day down 18.81 points on heavy sell-off in banks. Trading volume was light.
• Wild swings may continue to be the order of the day for the Thai stock market today. Sharp losses of nearly 60 points over the last two sessions could set the stage for some short-lived rebound in the composite SET index but we believe any gains may be limited and the market would continue its consolidation phase. Foreign selling spree continued in the Thai stock market with net sale of around Bt1.3bn yesterday but foreign investors turned net long by about 700 contracts in futures.
• Key factors to watch include (1) tensions in the Korean peninsula, (2) Europe’s sovereign debt crisis and (3) domestic political uncertainty and possible measures to curb the property market, and the rapid rise of the baht, which breached 29 per US dollar.
• Resistance for the composite SET index is seen at 1486-1500 and support at 1464-1450 today.

Indonesia

• The Jakarta Composite Index (JCI) trimmed earlier advance and ended with modest gain on Tuesday (09/04), as sentiments in Asia turned positive after the release of China’s inflation data. The JCI added 2.066 points, or 0.04%, at 4,899.587. Only 3 major sectors supported the advance, namely infrastructure sector climbed 1.37%, construction, property and real estate sector added 0.08%, and financial sector rose 0.06%. The LQ45 index gained 1.762 points, or 0.21%, at 827.225. The Rupiah added 0.39% at 9,718 against the US dollar, and 10-year government bond yield up 9.7 basis points, at 5.672. As many as 112 share advanced, 148 shares declined, and 213 shares stayed unchanged Tuesday on the Indonesia Stock Exchange, where 4.6 billion shares valued at IDR 4.86 trillion traded on the regular market. Foreign investors’ transactions totaled to a net sale of IDR 400.32 billion.
• We expect the Jakarta Composite Index (JCI) to trade higher, with support and resistance at 4,855 and 4,952 respectively.

Sri Lanka

• The market ended the day on a slight negative note due to the prevailed sluggish activities which led both indices entering in to red terrain. The benchmark ASPI Index closed at 5,767.60 losing 9.78 points or 0.17%; after closing positive for four successive trading days. The S&P SL20 Index too closed negative at 3,316.75, indicating a drop of 5.06 points or 0.15%. The market capitalization as at the day’s close stood at LKR 2.21Tn resulting in a year to date gain of 2.06%.The market PER and PBV were 15.56 and 2.12 respectively. The turnover for the day totaled up to record LKR 399.20Mn, a marginal 0.29% increase against the previous trading day. Under the sectorial summary, Bank Finance & Insurance (BFI) witnessed highest investor interest with 1,925 traded out of the total 5,989 trades being recorded during the day hence topping the list providing LKR 137.08Mn (34.34%). Diversified Holdings (DIV) stood second by contributing LKR 134.69Mn.Moreover, the two sectors BFI & DIV collectively made a 68.08% contribution to the day’s total turnover. During the day, a total of 14.07Mn Shares changed hands resulting in a drop of 30.34% against the previous trading day. Price losers outpaced the price gainers by 94:83. Foreigners appeared to be bullish during the day for the 7th consecutive trading day resulting in a net foreign inflow of LKR 112.25Mn, while extending the year to date net foreign inflow to record LKR 5.97Bn. Further, the inflows recorded during the past seven trading days accumulated up to LKR 1.05Bn.On the Foreign exchange front, the USD closed the day at LKR 127.17/- selling and LKR 124.13/- buying.

Australia

• The Australian share market closed higher on Tuesday, the benchmark S&P/ASX200 index gained 71.3 points to 4,976.8.
• Today, the Australian stocks look set to open slightly lower despite gains on Wall Street and European markets. The SFE Futures 200 is pointing downwards 1 point or 0.02 per cent to 4,968.
• In economic news on Wednesday, the Westpac/Melbourne Institute survey of consumer sentiment is due for release and Reserve Bank of Australia assistant governor Chris Kent will deliver a speech in Sydney.

Hong Kong

• Local stocks rebounded. The HSI and HSCEI rallied 152 points and 181 points to 21870 and 10610 respectively. Market volume was 57.35 billion.
• We believe the market is going to rebound due to China’s CPI in March is lower than market expected and stocks recovered, especially for the Mainland insurance and cement sectors, investors expected the level of tighten monetary policy will not be further enhanced, we believe HSI will start a wave of rebound in short term.
• However investors are suggested to maintain attention to the development of two Korea conflicts, which is a major uncertainty to the market recently, we suggest a cautious bullish view in short term. 
• Technically, the HSI is expected to gain a support from 21500 level, major resistance will be 22300 level.

Morning Note

Company Highlights

Contel Corporation Limited announced that it intends to allot and issue 4,333,577 new shares at an issue price of S$0.0624 per share to Stamford Law Corporation (”SLC”) in satisfaction of the professional fees owing to SLC in the amount of S$270,415.26 by way of a private placement the “Proposed Placement”). The Placement Shares when issued represent approximately 0.81% of the issued share capital of the Company as at the date of this announcement prior to the Proposed Placement and would represent approximately 0.80% of the enlarged issued share capital of the Company after the completion of the Proposed Placement. (Closing price: S$0.072, -17.24%)

China Oilfield Technology Services Group Limited announced that the Company’s Auditors, BDO LLP and BDO Limited, has issued their report on the Company’s financial statements for the financial year ended 31 December 2012, containing on emphasis of matter relating to the going concern assumption. A copy of the Independent Joint Auditors’ Report together with Note 3.1 of the financial statements is annexed to this announcement. (Closing price: S$0.042, -6.67%)

Chasen Holdings Limited announced that the Group’s wholly-owned subsidiary, Chasen (Shanghai) Hi-Tech Machinery Services Pte Ltd (“Chasen Shanghai”), has successfully secured a project for RMB48 million (approximately SGD9.6 million). The nature of the project consists of the move-in of equipment and related services for an 8.5G TFT/LCD manufacturer in Hefei, Anhui Province, PRC. The project will be executed from April 2013 to Nov ember 2013. (Closing price: S$0.275, -1.79%)

Olam International Limited announced that it has acquired the other 50% equity interest in USICAM SA (“Usicam”) incorporated in Cameroon for US$999,000 from ADM Cocoa International B.V. The consideration was arrived on a negotiated and arms length basis. As a result, Olam now owns 100% of equity interest in Usicam. The above transaction will be funded through internal cash resources and is not expected to have any material impact on the consolidated net tangible assets and earnings per share of the Group for the financial year ending 30 June 2013. (Closing price: S$1.66, +0.30%)

Oakwell Engineering Limited announced that the Company's Auditors, Messrs Deloitte & Touche LLP, have included an "emphasis of matter" in their Independent Auditors' Report in respect of the Company's financial statements for the year ended 31 December 2012. A copy of the Independent Auditors' Report together with the extract of the relevant notes to the Financial Statements annexed to the announcement. (Closing price: S$0.053, +1.92%)

Source: PhillipCapital Research - 10 Apr 2013