Morning Market Commentary

- STI: +0.47% to 3308.8                                - SET: +1.78% to 1516.8
- JCI: +0.96% to 4924.3                                - KLCI: +0.64% to 1707.0
- HSCEI: +0.13% to 10708.2                       - Hang Seng: +0.30% to 22101.3
- Nikkei 225: +1.96% to 13549.2                - ASX200: +0.57% to 3383.9
- India NIFTY: +0.64% to 5594                     - S&P500: +0.36% to 1593.4

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Based on advance GDP est (released today 8am), the Singapore economy contracted by 1.4% q-q saa in 1q13, reversing from growth of 3.3% in the preceding quarter. Consistent with our expectations (on this page yesterday as well as ASEAN macro strategy report), MAS stood pat, maintaining a modest and gradual appreciation of the S$NEER. Looking ahead, we expect MAS to continue to stand pat in a bid to anchor inflation expectations, barring a significant slowdown in the global economy. Nonetheless, there is a risk that MAS might reduce the slope of the policy band if the outlook of the global economy turns out to be weaker-than-expected in 2H13. But this is a small risk as concerns of a wage price spiral (as Spore economy restructures) as well as inflation bias (compared to growth) is likely to result in MAS maintaining its hawkish bias.

For Singapore, we expect that a modest growth and relatively elevated inflation (domestically-driven) environment might be the new norm as the Singapore economy restructures and focuses on inclusive growth.  Domestic-oriented industries such as the construction sector will be the main drivers of growth. External-oriented industries (electronics manufacturing cluster, wholesale trade) will be weighed down by sluggish external demand in 1H13, but should pick up gradually in 2H13 along with a rebound in global growth.

We continue to OW Singapore equities on account of the following: (i) rare AAA quality investment grade sovereign rating, (ii) relatively attractive dividend yield of around 3% (offered by MSCI Singapore), (iii) currency translation gains to boot (for foreign investors) and (iv) significant exposure to emerging markets which will mitigate any slowdown in the advanced economies.

STI has been consolidating in a tight range, consistent with our earlier guidance. 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.

USD/SGD range likely to hold. Sell USD/SGD if the pair breaks below 1.234 support zone, though that is unlikely to occur anytime soon.

In US, the S&P 500 continued to march to fresh highs as we -along with markets-heaved a sigh of relief.  Specifically, the 4-week moving average of initial jobless claims inched up by 3k, lower than the 12k gain in the preceding week. This suggest that the recent large upward swing in claims in the second half of March is likely to be transitory, distorted by seasonal effects. Watch out for US retail sales figures released today. A better-than-expected retail sales figure could provide another leg up for the S&P 500/DJIA as well as push the USD/JPY above the psychological 100 level. 

Positive sentiment overnight is expected to spill over to Asian session today. But geopolitical tensions in the region continue to linger with N Korea raising the stakes too high that makes it impossible for it to back down from its threats credibly.

In Japan, the Nikkei continued to charge ahead, treading above its upper bollinger band, as the USDJPY continues to flirt with the 100 level. This has been consistent with our base case which has been 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. Pullbacks will serve as an opportunity to accumulate long positions in Japan (Nikkei, Topix). An escalation of the North Korea crisis will provide an excuse for the rally to pause. Do note also that Kuroda has subtly hinted yesterday that its aggressive easing might be adjusted to avoid undesirable side effects such as asset bubbles.

In Greater China, the HSI and CSI300 still looks bearish unless it can convincingly clear resistance levels of 22.5k and 2.5k respectively. China policymakers are probably having a headache as the recent credit expansion-notwithstanding numerous property curbs- is likely to complicate the context/environment against which policies are set.

While Bank Indonesia stood pat yesterday, we reckon that was a policy mis-step. Monetary policy should be pre-emptive and a rate hike is warranted (likely within this year) in view of an impending spike in domestic inflationary pressures as fuel subsidies –which has been a fiscal strain- would eventually need to be scaled back.

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

Macro Data:

In the US, initial jobless claims slumped by 42k wk-on-wk to 346k for the week ending Apr 6 from the preceding week figure (which was revised higher).  The 4-week moving average of claims inched up by 3k, lower than the 12k gain in the preceding week. This suggest that the recent large upward swing in claims in the second half of March is likely to be transitory, distorted by seasonal effects.  (by Ng Weiwen)

In Indonesia, Bank Indonesia stood pat at its April monetary policy meeting, maintaining the policy rate at 5.75% with also no change to the overnight deposit facility rate (FASBI). Looking ahead, we reckon that Bank Indonesia rate will likely hike its benchmark interest rate or the FASBI within this year in view of an impending spike in domestic inflationary pressures as fuel subsidies –which has been a fiscal strain- would eventually need to be scaled back. A policy rate hike– from record low levels of 5.75% since Feb 2012- might bolster the rupiah and stem further capital outflows. (by Ng Weiwen)

In Malaysia, industrial production declined 4.5 % y-y in Feb, registering the steepest contraction since May 2011, owing to weakness in the manufacturing sector. Specifically, manufacturing output slumped 5.2% y-y in Feb. Nonetheless, in view of the impending 13th General Elections as well as still-healthy domestic demand, we maintained our view that Bank Negara Malaysia will continue to stand pat till after, and re-assess its policy rate position post-elections (barring any extreme deterioration in the global macro environment). (by Ng Weiwen)

In China, new yuan loan surged to 1060 billion RMB in Mar, exceeding the market expected 900 billion, after the 620 billion reading in Feb, indicating a continued economic recovery. The bird flu deaths in China rose to 10 as the number of infections increased to 38. So far there is little evidence that the nation’s macro economy is affected by the bird flu, though share prices in tourism related industries has been adversely affected. (by Roy Chen)

In Japan, machine orders rose by 7.5% m-m in Feb, beating the market expected 6.9% gain and the prior 13.1% m-m loss in Jan. Despite the monthly gain, Feb orders still slumped by 11.3% from a year ago, compared to 9.7% y-y drop in Jan. The BOJ governor Haruhiko Kuroda said that the central bank has made all possible monetary moves for now and the stimulus announced so far should be enough to achieve the government’s 2% inflation goal. Going forward, Yen is likely to remain weak, which is accommodative for the nation’s exports sector and overall economy. (by Roy Chen)

In Australia, unemployment rate unexpected rose to 5.6% in Mar, marking the 3 year high, after the 5.4% reading in Feb. Labor participation rate fell slightly to 65.1% in Mar, from 65.3% in Feb. On absolute basis, the number of employment fell by 36.1K, reversing about half of the 71.5K gain achieved in Feb. A separate report shows that the consumer inflation expectation fell slightly to 2.2% from prior 2.3%. The inflation is currently resting near the lower end of the central bank’s target range of 2-3%, the softened labor market adds to the odds that the central would lower the benchmark rate even further from the current half century low 3.0% level. (by Roy Chen)

Regional Market Focus

Singapore

• The benchmark STI inched up 15.55 points to end at 3,308.80 (+0.47%). There were 3.1bn shares traded worth S$1.3bn in value.
• The top active stocks include DBS (+0.32%), Singtel (-1.10%), UOB (+1.57%), Capitaland (+2.02%), and Interra Res (+11.58%).
• Our Macro team believes there the risk of profit taking in 2Q13 has risen, but that could present attractive opportunity to accumulate our OW in SG (construction boom, attractive dividend yield).
• 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 stayed in the green throughout the session on Thu, cheered by positive overseas sentiment. Gains were led by BANK, PROP and ICT. The composite SET index also crossed back above a key 1500-point barrier but trading volume remained light.
• Thai stocks are likely to see another session of extreme volatility today. The recent market gains of up to 46 points over the last two sessions were largely driven by local institutional buying while foreign investors remained in a wait-and-see mode. Foreign investors turned slight net buyers of Thai shares worth Bt23mn yesterday after several straight sessions of heavy net selling. 
• Today is the last trading day ahead of the long Songkran holiday while uncertainty remains high amid tensions in the Korean peninsula, Europe’s debt crisis and domestic political worries, leaving the market vulnerable to risk aversion selling in late market trading. The SET index will reverse to an uptrend if it can decisively break above 1540. Failure to break above this level will suggest more downward correction will continue. 
• Resistance for the SET index is seen at 1528-1540 and support at 1500-1487 today.

Indonesia

• Most Indonesian stocks rose on Thursday (11/04), bringing the Jakarta Composite Index (JCI) almost 1% higher, after the central bank held its benchmark rate at the record low, and amidst positive closes on stock markets in Asia. The Jakarta Composite Index (JCI) rose 46.788 points, or 0.96%, to close at 4,924.263. The advance was supported by all 9 major industry groups, led by Construction, Property, and Real Estate sector that surged 2.98%, Miscellaneous Industry sector gained 2.31%, and Financial sector advanced 1.17%. The LQ45 index added 9.301 points, or 1.13%, to finish at 832.166, with 27 of its 45 blue-chip components finished in green. From economic front, Bank Indonesia on Thursday (11/04) kept its benchmark rate at 5.75% for the 14Th meeting, as the central bank considered that it is still in line with the inflation target of around 4.5% for 2013 and 2014. Short-term inflationary pressure and volatile food prices were also reasons for the central bank to hold its benchmark rate. 175 shares advanced, 101 shares declined, and 197 shares remained unchanged Thursday on the Indonesia Stock Exchange, where 4.53 billion shares worth IDR 5.1 trillion changed hands on the regular board. Foreign investors posted net sales of IDR 152.67 billion.
• We expect the JCI to move within 4,872 - 4,949 range today.

Sri Lanka

• Bourse extended it encouraging positive momentum further to conclude the day’s trading as the ASPI end at 5,813.37 (up by 19.07 points) and S&P SL20 up by 6.93 points to close at 3,329.42. Prevailed buying interest on selected counters   elevated the turnover level to LKR 940Mn and crossings provided 57% contribution to the daily turnover. Foreign investor activity in the bourse has heated up for the year to date on 2013 also and accumulation on leading blue chip companies were witnessed during last few months. This could be taken as a clear sign that the overseas investors are foreseeing a revival in the Colombo bourse performance However, the local investors still remain vigilant to join in with a clear lack of confidence as well as lower retailer participation was observed due to festival season also. The daily turnover amounted to LKR 940.47Mn resulting in a momentous rise of almost 204% when compared to the previous trading day. During the day investor attractions were vastly on Bank Finance & Insurance (BFI) sector with 1,972 trades out of the total 5,142 trades, hence assisting BFI emerge as top contributor under the sectorial summary having provided LKR 691.49Mn which alone accounts to nearly 74% of the daily aggregate turnover. The Beverage Food & Tobacco (BFT) also made a notable contribution of LKR 73.24Mn.Further, the two sectors BFI and BFT collectively accounted to 81.31% of the daily aggregate turnover. A total of 34.50Mn Shares changed hands resulting in a significant increase of 145.14% against the previous trading day. Price gainers exceeded the price losers by 109:70. Foreigners appeared to be bullish during the day for the 9th successive trading day resulting in a net foreign inflow of LKR 479.52Mn, while assisting the year to date net foreign inflow (LKR 6.46bn) to surpass the LKR 6Bn mark for the 1st time during the year. In regard to the local FOREX market, the USD closed at LKR 127.11/- selling and LKR 124.07/- buying.

Australia

• The Australian share market on Thursday moved higher, with the benchmark S&P/ASX200 index rising 0.79 per cent to 5,007.1.
• Today (12/04/13), the Australian stock market looks set to open firmer after Wall Street posted fresh highs during offshore trading. 
• In economics news on Friday, the Australian Office of Financial Management will sell $600 million of Commonwealth Government bonds with a maturity date of October 21, 2015.

Hong Kong

• Local stocks rebounded. The HSI and HSCEI rallied 66 points and 14 points to 22058 and 10708 respectively. Market volume was 57.97 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

Interra Resources Limited announced that its jointly controlled entity, Goldpetrol Joint Operating Company Inc. (“Goldpetrol”), has commenced drilling infill development well YNG 3253 in the Yenangyaung oil field in Myanmar. Interra has a 60% interest in the Improved Petroleum Recovery Contract of the Yenangyaung field and also owns 60% of Goldpetrol which is the operator of the field. YNG 3253 is being drilled using Goldpetrol’s ZJ 450 rig and thus drilling costs are expected to be comparatively low. Interra’s share of the cost of drilling will be funded from existing funds on hand. Company estimates that the results of the drilling and completion should be available in approximately six weeks. (Closing price: S$0.530, +11.6%)

Far East Group Limited announced that it has entered into a conditional share sale and purchase agreement with Universal Pte. Ltd. (“UPL”) and Mr. Cheung Wai Sum (“Sam Cheung”) to acquire an aggregate of 85.00% of the paid-up registered capital and an aggregate of 82.50% of the unpaid registered capital of Eden Refrigeration Manufacturing (Jiangsu) Co., Ltd (“ERM”). The total payment for the Proposed Acquisition shall be an amount of approximately S$11,688,000. Upon completion of the Proposed Acquisition, ERM will be a 84.25%-owned subsidiary of the Company. The remaining 15.75% shareholding interest in ERM is held by Fuco Rudyanto Chandra who is not related to any of the Company’s chief executive officer, directors, controlling shareholders or their associates. (Closing price: S$0.205, Unchanged)

China Energy Limited announced that the Company’s Independent Auditors, Moore Stephens LLP have issued the Independent Auditors’ Report in respect of the audited financial statements of the Group for the financial year ended 31 December 2012 with an emphasis of matter opinion pertaining to the Group’s going concern assumption. A copy of the Auditors' report is annexed to this announcement. (Closing price: S$0.075, +2.7%)

Yoma Strategic Holdings Limited has been informed that the consortium, comprising YSH Finance Ltd., Digicel Group Limited and Quantum Strategic Partners Ltd., has pre-qualified to apply for one of the two new telecommunications licences in Myanmar expected to be awarded later this year. As a result, the consortium will be participating in the final stage of the tender process for one of the two new nationwide telecommunications licences in Myanmar. Responses to the invitation to tender are due on 3 June 2013. An announcement of the two winning applicants is expected on 27 June 2013. (Closing price: S$0.810, -0.6%)

Tiger Airways Holdings Limited provided an update in relation to its proposed divestment of 60% shareholding interest in Tiger Airways Australia Pty Ltd. The Australian Competition and Consumer Commission (“ACCC”) has announced today that the proposed date for announcement of ACCC’s final decision on the Divestment is 24 April 2013. (Closing price: S$0.645, +1.6%)