Morning Market Commentary

- STI: +1.17% to 3322.7                                  - SET: +0.29% to 1553.9
- JCI: +0.73% to 5011.6                                  - KLCI: +0.41% to 1707.4
- HSCEI: +2.01% to 10634.4                          - Hang Seng: +1.73% to 22183.1
- Nikkei 225: +2.32% to 13843.5                   - ASX200: +0.42% to 3388.3
- India NIFTY: +0.04% to 5836.9                    - S&P500: +0.00% to 1578.8

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

The US equity rally is stalling in view of the soft patch the economy is in right now. While yesterday's durable goods orders registered a sharper-than-expected decline, please do not panic. The disappointment was largely due to a slump in the volatile aircraft segment. Focus on the critical segment instead. New orders for core capex (nondefense, ex-aircraft) inched 0.2% m-m in March, reversing from 4.8% decline in the preceding month. Though that is admittedly still a rather soft reading.

As we have cautioned previously, the US economy is entering a soft patch: coincident indicators like employment, sales, shipment data is consistent with our expectations that 1H13 GDP will be weak due to the payroll tax hike, sequester. The recent US rally has also not been earnings driven, thus leaving the S&P500 vulnerable to a correction. However, forward looking indicators suggest that the 2H will be stronger – investment, housing are still on positive trends, plus the trade deficit is narrowing steadily. Thus we maintain OW on the US with one eye that any correction represents a buying opportunity.

The Philippine central bank meets today. Reckon that odds of a rate cut are low at this juncture in view of resilient domestic demand, with benign inflation to boot. But we do not rule out the possibility of the BSP either reducing policy rates or performing RRR cuts to temper the appreciation of the Philippine peso, rather than stimulating growth per se. In fact, Philippines is in a goldilocks situation with the economy being supported by resilient domestic demand and in the middle of an upturn in the investment cycle driven by record-low interest rates as well as a slew of reforms.

Notwithstanding Wed’s upward bounce, we are still penciling near-term downward bias for the HSI and HSCEI as both indices remain mired in a bearish moving average crossover. HSCEI is likely to re-test its 200dma level (10.5k level).  HSI needs to take out 22.5k to go higher.

In Japan, the Nikkei gapped up by more than 2% to a multi-year high as the USD/JPY launched an onslaught for the psychological 100 level. Key risk event will be the BOJ’s monetary policy meeting as well as inflation data this Friday (26 Apr) which could shed some light on progress on the deflation front. Our base case has been that as long as the USD/JPY continues to march towards (better if it clears above) the psychological 100 level, the Nikkei will continue to rise higher. We are cautiously optimistic about Japan as we are seeing incipient signs of attempts at implementation of structural micro reforms (economic and fiscal) which are essential ingredients for a structural bull run in Japan to materialise.

STI continued to consolidate in a tight range. Consistent with our earlier guidance, STI challenged and closed –just a tad- above the 3320 level. Next key resistance will be the psychological 3400 hurdle; key support pegged at 3250.

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

Macro Data:

In US, headline durable goods orders registered a sharper-than-expected decline of 5.7% m-m in March, reversing from 4.3% rise in the preceding month. The disappointment was largely due to a slump in the volatile aircraft segment. Nonetheless, the critical new orders for core capex (nondefense, ex-aircraft) inched 0.2% m-m in March, reversing from 4.8% decline in the preceding month. More signs of a soft patch ahead. Recall the Markit flash US manufacturing PMI declined 2.6pts m-m to 52pts (6-mth low) in April on the back of a broad-based slowdown across new domestic orders, output and employment. (By Ng Weiwen)

Germany is not spared from weaker growth and deleveraging in the EZ bloc. The German Ifo business climate indicator continued to decline for the second consecutive month by 2.3pts to 104.4 on weaker current business conditions and expectations. Recall April composite PMI revealed that Germany has been dragged down to the dark side, with its business activity declining for the first time since last Nov. We are pencilling in a possible 25 bps cut in refinancing rate, with no change to the deposit rate floor at the next ECB meeting. (By Ng Weiwen)

In Thailand, exports rose 4.55% y-y in March, almost doubling consensus expectations. We maintain Overweight on Thailand equities. Thailand will continue to outperform as it is well positioned toward both domestic demand as well as a rebound in global growth. But returns will be moderate at best due to relatively stretched valuations. (By Ng Weiwen)

In Australia, central bank preferred inflation measure eased to 0.3% q-q in 1q13, the lowest reading since the third quarter of 1998, while the market was predicting a 0.5% q-q gain. The central bank is currently holding benchmark rate at 3.0%, matching the half century low. The tame inflation would give central bank more scope for benchmark rate cut if necessary. (by Roy Chen)

Regional Market Focus

Singapore

• The benchmark STI remained range bound to close at 3,322.71 (+1.17%). The 2.4bn shares traded were worth S$1.8bn in value. 
• The Media Development Authority (MDA) made a surprise announcement yesterday, ruling that SingTel must share its contents for the Barclays Premier League under the cross carriage regime for 2013-2016 seasons. This would enable Starhub to carry the BPL contents on its network. The stock prices for both companies were little changed in early trading (Starhub: +0.7%; SingTel: -0.5%).
• 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 traded range-bound with a positive bias on Wed as the absence of additional measures from the Bank of Thailand to stem the rapid rise of the baht kept investors in a wait and see mode. The composite SET index rallied to test 1560-point resistance in the morning but failed to break through.
• The composite SET index is likely to continue its choppy sideways pattern today amid uncertainty over possible baht measures. Stock markets in Asia steadied in early trade on Thu following weakness in US equities on disappointing US earnings results and after data showed orders for long-lasting US manufactured goods recorded their biggest drop in seven months.
• Heavy foreign net selling of Thai shares yesterday may put investors on edge which would in turn keep the market range-bound.
• Resistance for the composite SET index is seen at 1560-1565 and support at 1550-1545.

Indonesia

• Indonesian stocks mostly finished in green on Wednesday (24/04), Asian stocks rose the most in two weeks as Japanese exporters advanced after the yen weakened overnight and higher sales of new homes in the U.S. added to recovery signs. The Jakarta Composite Index (JCI) climbed 36.28 points, or 0.73%, at 5011.61. All Sectors advanced and shares Cons. Goods climbed the most with the sector’s index up by 1.47%, followed by Construction sector that moved up 1.08%, and basic industry sector increased 0.95%. The LQ45 index went up 7.686 points or 0.91%, to close at 850.661. French investigators have reportedly started looking into the alleged sale of illicit products by HSBC aimed at French customers in Switzerland. Foreign investors posted net sell of IDR 43.18 billion
• The Jakarta Composite Index (JCI) will likely trade sideways today, as stock markets in the US turned lower, while in Asia, stock indexes edged higher. We estimate that the Jakarta Composite Index will tend to move sideways.

Sri Lanka

• The Bourse concluded the trading day on an encouraging manner resulting positive closures on both indices and assured further appreciations in their respective green territories. This was mainly as a result of the active participation of the investors throughout the day. Most counters noted price gains during the day whilst the gainer to loser ratio being a smashing 145:56. The benchmark ASPI index (5,933.73) closed positive accruing substantial 50.21 points or 0.85% to close above 5,900 levels recording the highest index value after 1st  October 2012; besides, during the past 2 trading days ASPI gathered 61.30 points or 1.04%. The S&P SL20 price index too closed positive for the third successive day at 3,358.51 having gained 13.66 points or 0.41%.
• The Market capitalization as at the day’s closure leaped to record LKR 2.27Tn resulting in a year to date gain of 4.88% and the market PER and PBV stood at 16.03 and 2.18 respectively. The recorded turnover for the day was LKR 975.32Mn, a gain of 37.64% from its previous day. 
• Under the sectorial round-up, the limelight fell on the Power & Energy (P&E) sector recording a turnover of LKR 313.33Mn providing a 32.13% to the day’s total turnover value hence assisting P&E to top the list; The sector was mainly supported by the subscription made by PAP. Bank Finance & Insurance (BFI) stood second in terms of both, turnover contribution and grabbing investor interest during the day; BFI recorded a turnover of LKR 190.38Mn as a result of 1,815 trades taking place. Further, Manufacturing sector (MFG) turned out to be the sector perceiving the highest investor participation recording 1,839 trades out of the total 10,325 trades being noted within the day.  The two sectors P&E and BFI collectively made account to 52% of the aggregate turnover recorded.
• A total of 138.32Mn shares changed hands within the day resulting in massive upsurge of 356.57% against the previous trading day. Having recorded Net Foreign Inflows for 16 continuous trading days which accumulated LKR 3.5Bn, foreign participants appeared to be bearish for the 1st time during the week which in turn resulted in an out flow of LKR 161.54Mn while diminishing the year to date Net Foreign Inflow to LKR 8.26Bn. In regard to the local FOREX, the USD closed at LKR 128.37/- selling and LKR 125.32/- buying.

Australia

• The Australian share market is closed for public holiday.

Hong Kong

• Local stocks climbed. The HSI and HSCEI rose 376 points and 209 points to 22183 and 10634 respectively. Market volume was 61.51 billion.
• Even the HSBC PMI in April was lower than market expectation, investors may concern the growth of China may slowdown. 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 21800 level, major resistance will be 22800 level.

Morning Note

Company Highlights

STATS ChipPAC Ltd., a leading provider of advanced semiconductor packaging and test services, announced the appointment of Mr. James A. Norling to succeed Mr. Charles R. Wofford as Chairman of the Board of Directors with immediate effect. He was appointed to the Board of Directors at the Company’s Annual General Meeting held on 24 April 2013. Mr. Wofford will retire from over 15 years of service on STATS ChipPAC’s Board of Directors, including 11 years as Chairman of the Board. (Closing price: S$ 0.430, -1.149%)

Courts Asia Limited announced that it has today priced S$125 million 4.75% fixed rate notes due 2016 (the "Notes"). The Notes will be issued under the S$500,000,000 Multicurrency Debt Issuance Programme established by the Company on 23 April 2013 (the "Programme"). DBS Bank Ltd. and The Hongkong and Shanghai Banking Corporation Limited have been appointed to act as the joint lead managers and bookrunners for the issue of the Notes. The Notes will be issued at an issue price of 100% of their principal amount and in denominations of S$250,000. The Notes will bear interest at a fixed rate of 4.75 per cent. per annum payable semiannually in arrear and have a tenor of three years. (Closing price: S$0.980, +1.554%)

Ezra Holdings Limited, a leading global offshore contractor and provider of integrated offshore solutions to the oil and gas (O&G) industry, announced it has issued an aggregate principal amount of S$150million 4.875% Fixed Rate Notes due 2018 (“Notes”) which have been fully subscribed by investors. The Notes received robust demand from more than 30 accounts across institutional investors, banks and private banking investors. The Notes were issued under Ezra’s US$500 million Multicurrency Debt Issuance Programme established in August 2012, and will mature on 24 April 2018. Investors will receive their coupon interest payments of 4.875% per annum, semi-annually in arrear. The net proceeds from the issue will be used mainly to refinance existing borrowings of the Group, and the remainder for financing general working capital and general corporate purposes of the Group. DBS Bank Ltd. and Oversea-Chinese Banking Corporation Limited were appointed as joint lead managers and bookrunners for the issuance. (Closing price: S$0.970, -%)

Source: PhillipCapital Research - 25 Apr 2013