Morning Market Commentary

- STI: -0.30% to 3284.37                                - SET: +0.69% to 1527.3
- JCI: -0.86% to 4894.6                                   - KLCI: -0.04% to 1697.8
- HSCEI: -2.02% to 10440.8                           - Hang Seng: -1.43% to 21772.7
- Nikkei 225: -1.55% to 13275.7                    - ASX200: -0.71% to 3343.6
- India NIFTY: +0.72% to 5568.4                    - S&P500: -2.30% to 1552.4

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Is April the new May? Often we have clients asking us whether they should "Sell in May and go away". Well, our view has been that the risk of profit taking (correction) this 2Q13 for Equities has risen, given softness in US and China macro data. But pull-back in equities offers an attractive opportunity to accumulate our OWs in US, CN & HK (on compelling valuations), ID, PH, TH (resilient domestic demand) and SG (construction boom, attractive dividend yield). 

In the US, the bears led the charge from the opening till the closing bell as reflected in both S&P 500 and DJIA's price action on Mon on the back of weaker-than-expected Empire State Manufacturing Survey as well as NAHB homebuilder sentiment, along with a subdued global macro backdrop.

Is China entering an era of slow growth? Reckon that Chinese policymakers are confronted with a major headache on account of strong credit growth but weak GDP growth (with industrial output and fixed asset investment undershooting) as the recent credit expansion-notwithstanding numerous property curbs- is likely to complicate the context/environment against which policies are set henceforth.

Near-term downward bias for the HSI and HSCEI. HSCEI has slipped below its 200dma support level (10.5k level) while the HSI is likely to challenge its key 200dma support at 21.5k level  amid a bearish moving average crossover for both indices.

The confluence of  weaker-than-expected China’s macro data as well as sharp sell-off in gold weighed on the AUD/USD. Already, the Aussie has pierced thru' its lower bollinger band (on a daily time frame) during Tokyo session today. Commodities (gold, silver, oil, copper) all tumbled.

Both the Nikkei and USD/JPY likely succumbed to profit taking on Mon. Pullbacks will serve as an opportunity to accumulate long positions in Japan (Nikkei, Topix). Our base case 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. Reckon USD/JPY is likely to retest the 99.95 level (11th Apr 2013 high) before challenging the psychological 100 level.

STI has remained resilient and continued to consolidate 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.

Notwithstanding the tight correlation of the SGD and Gold in the ‘safe havens club, reckon that USD/SGD range is likely to hold with strong support at 1.235 (200dma).

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

Macro Data:

In US, homebuilder sentiment continued to disappoint. Specifically, the NAHB housing market index continued to decline for the third consecutive month by 2pts m-m to a reading of 42 in April, on concerns of easing demand as well as tighter credit. Meanwhile, the Empire State manufacturing survey came in weaker than expected, declining 6.1pts m-m to 3.1 in April.  These recent data corroborate with our view that the US economy is likely to see a year of 2 halves in 2013 – a soft patch in 1H, followed by a rebound in 2H. (by Ng Weiwen)

In Singapore, retail sales gained 3.6% m-m sa in Feb, reversing from a 1.2% contraction in the preceding month. Ex motor vehicles, retail sales surged 7.8%. (by Ng Weiwen)

In China, GDP grew by 7.7% y-y in 1q13, trailing the market expected 8.0% y-y growth and the prior 7.9% y-y growth in 4q12. Industrial production grew by 8.9% y-y in Mar, after the 10.1% y-y gain in Feb. FAI rose by 20.9% y-y, slower than the 21.2% y-y pace in Feb, and trailed the market expected 21.3% pace. Retail sales reported a growth of 12.6% y-y in Mar, meeting the market expectation. The unexpected underperforming data reflected a fragile China growth recovery. (by Roy Chen)

In Australia, performance services index fell slightly to 55.4 in Mar from 55.5 reading in Feb, indicating a relatively stable expansion in service industry. A separate report shows that home loan rose by 2.0% m-m in Feb, beating the market expected 1.5% m-m gain, after the 1.5% y-y fall in Jan. Investment lending rose by 1.8% m-m, after the 4.4% m-m gain in Jan, indicating a continuous expansion in the nation’s investment. (by Roy Chen)

Regional Market Focus

Singapore

• The benchmark STI extended its correction yesterday by -9.82 points to end at 3,284.37 (-0.30%). There were 2.3bn shares traded worth S$1.2bn in value.
• The top active stocks include SPH (-5.65%), Singtel (+0.28%), DBS (-0.83%), Ascendasreit (+2.88%), and ISDN (-2.58%).
• Keppel FELS announced yesterday that it won a contract worth US$226mn (S$280mn) from a new customer, Falcon Energy Group, to build a KFELS Super B Class jack-up. Our sector analyst continues to like Keppel Corp (TP: S$12.38) as it is well positioned in the O&M sector.
• 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 is closed on 15 April and 16 April for Songkran Festival holiday

Indonesia

• Most stocks listed on the Indonesia Stock Exchange started this week in negative tone, amid declines in Asia stock markets following lower closes on US market Friday, and disappointing China economic growth data. The Jakarta Composite Index (JCI) shed 42.618 points, or 0.86%, at 4,894.592. The decline on Monday included all major sectors. Financial sector fared worst, with 1.16%-plunge, followed by Trade and Services sector that fell 1.09%, and Basic Industry sector dropped 1.05%. The LQ45 index fell 8.526 points, or 1.02%, at 825.598, with 30 of its 45 blue-chip components ended in red. 177 stocks declined, 71 stocks advanced, and 225 stocks stayed unchanged Monday on the Indonesia Stock Exchange, where 2.79 billion shares with total value of IDR 3.4 trillion traded on the regular board. Foreign investors posted net sales of IDR 469.85 billion.
• The Jakarta Composite Index (JCI) will likely continue falling on Tuesday (16/04), trailing deep losses on US markets overnight, and as stock markets in Asia started in negative territory this morning on concerns about China’s economic slowdown and rising Yen. We expect the JCI to trade lower today, with support and resistance at 4,870 and 4,937, respectively.

Sri Lanka

• The Colombo bourse was closed yesterday for Special Bank Holiday

Australia

• The Australian share market on Monday moved lower, with the benchmark S&P/ASX200 index falling 0.91 per cent to 4,967.9 points.
• Today (16/04/13), the local stock market looks set to open weaker after a negative finish on overseas markets. The SFE Futures 200 index is pointing downwards 31 points or 0.62 per cent to 4,930.
• In economics news on Tuesday, the Reserve Bank of Australia (RBA) will release the minutes of its April board meeting at 1130 AEST.
• In equities news, miner Rio Tinto (RIO.AU) will release its first quarter operations review.

Hong Kong

• Local stocks fell. The HSI and HSCEI dropped 316 points and 215 points to 21773 and 10441 respectively.
• 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 and YuuZoo had entered into a Shares and Options Exchange Agreement whereby Contel will acquire the entire issued and outstanding YuuZoo share capital and options from the YuuZoo share and options holders, by way of exchange for new Contel shares. In connection with the Agreement, Contel also propose the consolidation of every five existing (5) shares into one (1) consolidated share (or such other ratio as Contel and YuuZoo may agree in writing), to take effect on or before completion of the acquisition. Based on the existing issued and paid-up share capital of Contel, the aggregate consideration payable by Contel for YuuZoo is approximately S$582.3 million, which will be satisfied by the allotment and issuance of new Contel shares, representing 85% of the post-RTO augmented share capital of Contel. Upon completion, YuuZoo will become a wholly-owned subsidiary of the Company. (Price before trading halt: S$0.081)

Sino Grandness Food Industry Group Limited announced that it has successfully secured multiple new distributors and sizeable indicative orders after participation at the trade exhibition held in Chengdu, Sichuan Province PRC during the last week of March 2013. During the Chengdu Trade Exhibition, Sino Grandness received tremendous response from existing and new distributors with significant interests generated for its own-branded 鲜绿园 (“Garden Fresh”) beverage and 振鹏达 (“Grandness”) canned food products. Since the conclusion of the Chengdu Trade Exhibition, the Company also organized trade fairs with its distributors and continued to receive numerous enquiries, positive feedbacks and indicative orders from interested distributors. Indicative orders received to-date for “Garden Fresh” juices have exceeded RMB290 million, up 45% compared with more than RMB200 million received after the trade exhibition last year. Separately, the Group also secured more than RMB70 million worth of indicative orders for its range of “Grandness” canned products. (Closing price: S$1.235, +6.009%)

Keppel Corp Ltd announced that Keppel FELS Limited (Keppel FELS), a wholly-owned subsidiary of Keppel Offshore & Marine (Keppel O&M) secured new jackup order for US$226 million from Singapore-listed Falcon Energy Group Limited (Falcon Energy) through its subsidiary, FTS Derricks, to construct a KFELS Super B Class jackup rig. (Closing price: S$11.390, -0.263%)

Geo Energy Resources Limited announced that it had entered into a fifth conditional sales & purchase agreement for to acquire a fifth mine concession in 2013. This new concession, spanning a total concession area of 4,600 hectares, is estimated to contain higher calorific value coal of 7,200 kcal/kg (GAR) and semi-coking coal, expanding the Group’s range of production. In February 2013, the Group also announced that it had entered into separate conditional sales and purchase agreements for four other mine concessions. Together with today’s announcement, this brings the Group’s total proposed mine concession acquisitions for the year to five. (Price before trading halt: S$0.545)

Source: PhillipCapital Research - 16 Apr 2013