Morning Market Commentary

STI: +0.0% to 3291.5                             KLCT: +0.61% to 1710.9
JCI: +1.08% to 4998.7                           SET: -0.38% to 1521.5
HSI: -0.47% to 21569.7                         HSCEI: -1.20% to 10300.9
Nikkei: +1.22% to 13382.9                   ASX200: +1.08% to 5004.6
Nifty: -0.0% to 5688.7                            S&P500: -1.43% to 1552.0

MARKET OUTLOOK:
By Joshua Tan, Head of Research

Gold is rebounding from being oversold. While goldbugs will be tempted for this “buying opportunity”, Global Macro team will be maintaining its officially UW (underweight) rating on Gold which we have had since 25th Oct 12 when we downgraded it in a special report that day. In short, by all means long the bounce but we would recommend then selling it into strength.

It has been hard to convince people why we underweighted gold in 4q12 as most are convinced “money printing” is good for gold. While we acknowledge that may indeed keep interest in gold alive, at the time (1) gold price action just did not react positively to central bank announcements around the world of expanding or maintaining their QE policies – we think QEs have actually reduced macro tail risk thus reducing gold’s allure as the ultimate safe haven, (2) US trade deficit was and still is in a narrowing trend which is bullish for the US$ and thus bearish for gold.

Globally, the world is in a soft path in terms of macroeconomic data – thus risk of a correction in equities is something to be aware of – we do however still hold the stance that equities should be Overweighted for the year and that any correction presents a buying opportunity for stocks as we think the US and China will pick up in the first half. Our OW markets are the US, Greater China, SG, TH, PH, ID.

(Please see our Global Macro Asset Strategy reports for ETF and CFD instruments to trade the macro outlook. PhillipUT Wrap Account offers tactical asset allocation of unit trusts without front loading sales charge.)

Macro Data:
By Ng Weiwen & Roy Chen

In Singapore, non-oil domestic exports declined by 12.5% on a y-y 3mma basis in March 2013, following the 16.4% contraction in the preceding month. Electronics shipments fell 17.9% y-y in March, though at a slower pace as compared to the 27.4% fall in the preceding month. By contrast, pharmaceutical exports gained 2.9%. With March NODX coming in better than expected, there could possibly be upside revision to 1q13 GDP growth. But electronics needs to pick up the slack. Notwithstanding the soft patch that major economies (US and China) are undergoing at this juncture, we are cautiously optimistic that the electronics sector might be turning around the corner on account of: (i) improved SEMI book-to-bill ratio as well as (ii) incipient signs of stabilisation in the pace of decline of electronics shipments.

In Malaysia, headline inflation ticked up from 1.5% y-y in Feb to 1.6% y-y in March on account of higher prices of food and non-alcoholic beverages. 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).

In UK, unemployment rose by 70,000 to 2.56mil in the 3 months period ended in Feb, marking the biggest rise sine Nov 2011. Unemployment rate unexpectedly rose to 7.9%, while the market was expecting no change at 7.8%. The underperforming job market reflected a weak growth momentum amid the government’s austerity measures. The IMF cut its forecasts for the UK economy earlier and said BOE should consider more loosening to boost the nation’s economic recovery.

In Japan, consumer confidence index rose slightly to 44.8 in Mar from prior 44.2, marking the highest reading since July 2012, but still a relative weak reading. The weak confidence index reflected the nation’s general stagnant consumption and the effect of the BOJ’s bold loosening on real economy is yet to come.

In South Korea, PPI fell by 2.4% y-y in Mar, the biggest drop since Aug 2012, compared to a 1.6% y-y drop in Feb. The drop of PPI reflects a softened demand for the nation’s goods as the sharply weakened yen undermines the nation’s exports sector. The central bank unexpectedly left the interest rate unchanged at 2.75% in the earlier monetary policy meeting, amid the challenging environment due to weakened yen and geographical uncertainty with North Korea. The inflation is staying at a tame level and the central bank does have scope for further loosening if necessary.

Regional Market Focus

Singapore

• The benchmark STI barely changed yesterday, closed -0.12 points lower to end at 3,291.46 (-0.0%). There were 2.3bn shares traded worth S$1.6bn in value.
• The top active stocks include Singtel (+0.55%), DBS (-0.13%), SPH (-2.08%), UOB (+1.87%), and GLP (+0.36%).
• 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 yesterday saw choppy trade on poor China’s economic data and the explosion incident in the US and it finally ended the session in the red territory led by selloff in energy stocks amid heavy buying of ICT-linked stocks.
• Thai stock market sentiment would be lackluster in response to subdued European stock markets and heavy losses in the US broad stock market, plunging 138.19 points, on selloff in heavy-weighted Apple shares and weaker-than-expected results from Bank of America. Adding to the negative sentiment was a sixth consecutive decline in oil prices. In the meantime, investors are still looking ahead to the court battle over the Preah Vehear dispute and a draft to the amnesty bill which would be debate in the House today.
• The SET index appears to face the risk to the downside both on external and internal factors. We advise investors to buy the dip, rather than chasing the prices.

Indonesia

• The Jakarta Composite Index (JCI) settled at a new record high, nearing its psychological level of 5,000 on Wednesday (17/04), as stock markets in Asia rallied following higher closes on US markets overnight and after the IMF raised its outlook on Japan’s economic growth. The JCI rose 53.4 points, or 1.08%, to close at 4,998.653 on Wednesday. A break above 5,000 will be crucial to the composite index, a level which will then act as a strong support in longer-term view. The advance on Wednesday included seven of the 9 major industry groups, led by Basic Industry sector that surged 3.00%, followed by Financial sector with 1.70%-gain, and Trade and Services sector climbed 1.63%. Miscellaneous Industry sector and Agriculture sector weighed on the index however, each with 0.96%-decline and 0.31%-loss. The LQ45 index advanced 9.473 points, or 1.13%, at 847.894, with 24 of its 45 blue-chip components closed in green. As many as 152 shares closed higher, 105 shares turned lower, and 214 shares remained unchanged Wednesday on the Indonesia Stock Exchange, where 3.87 billion stocks worth IDR 5.74 trillion changed hands on the regular board. Foreign investors posted net purchase of IDR 618.05 billion.
• The Jakarta Composite Index (JCI) will likely turn lower today, following downbeat finishes on US markets overnight and negative openings in Asia this morning, as disappointing earnings reports in the US dented sentiments. The JCI will also face a strong resistance at 5,000, as a crucial psychological level. We expect the JCI to trade lower today, with support and resistance at 4,938 and 5,000 respectively.

Sri Lanka

• The Bourse ended the trading day on an optimistic sentiment, assisting both indices to record positive closures while retaining its contented stay on the positive side; this was mainly as a result to the active participation of the investors seen throughout the trading day. The benchmark ASPI index closed positive accruing 15.85 points or 0.27% to close at 5,868.53; in addition, during the past 5 trading days the ASPI collectively gathered 100.93 points or 1.74%. The S&P SL20 price index too closed positive for the fifth successive day at 3,361.99 having gained 10.42 points or 0.31%. The market capitalization as at the day’s closure stood at LKR 2.25Tn resulting in a year to date gain of 3.72% and the market PER and PBV stood at 15.86 and 2.16 respectively. The recorded turnover for the day was LKR 611.45Mn, a decline of 61.30% against the previous day.  Under the sectorial round-up, the limelight fell on the Bank Finance & Insurance (BFI) sector where 2,515 trades out of the total 8,614 trades being recorded hence assisting BFI to emerge as the key subscriber having provided LKR 277.23Mn which accounts for 45.34% of the daily aggregate turnover. Diversified Holdings (DIV) provided LKR 156.58Mn. Moreover the two sectors BFI and DIV collectively made a sizable 71% subscription to the total turnover. During the day a total of 31.90Mn Shares changed hands resulting in a drop of 50.66% against the previous trading day. Price gainers outdid the price losers by 106:81. Foreign participants appeared to be bullish for the 12th trading day including today where purchases worth LKR 126.13Mn and sales of LKR 82.39Mn were noted which in turn resulted in a net foreign inflow of LKR 43.74Mn; this extends the YTD net foreign inflow to record LKR 7.15Bn. In regard to the local FOREX, the USD closed at LKR 127.05/- selling and LKR 124.01/- buying.

Australia

• The Australian stock market rebounded on Wednesday with the benchmark S&P/ASX200 index climbing 1.08 per cent to 5,004.6 points.

Hong Kong

• Local stocks fell. The HSI and HSCEI dropped 102 points and 126 points to 21570 and 10301 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

Federal International (2000) Ltd announced that the Company’s Auditors, Ernst & Young LLP, had issued their report on the Company’s financial statements for the financial year ended 31 December 2012, containing an emphasis of matter relating to going concern and uncertainties surrounding Management’s assessment of the recoverable values of certain assets that may have an impact on the carrying amounts of these assets recorded in the Group’s balance sheet. A copy of the Auditors’ report together the relevant Note 2 and 12 to the financial statements is annexed to this announcement as Appendix ‘A’, for information. (Closing price: S$0.028, Unchanged)

Boardroom Ltd announced that the acquisition of the remaining 40% equity interest in Boardroom China Holdings Pte. Ltd. has been duly completed, further to the announcement made by the Company on 3 April 2013. On completion, Boardroom China Holdings Pte. Ltd. is a wholly-owned subsidiary of the Company. (Closing price: S$0.64, Unchanged)

Source: PhillipCapital Research - 18 Apr 2013