Morning Market Commentary

- STI: +0.33% to 3348.9                                  - SET: +0.55% to 1582.9
- JCI: -0.32% to 4978.5                                   - KLCI: +0.29% to 1711.3
- HSCEI: +0.57% to 10834.1                         - Hang Seng: +0.65% to 22547.7
- Nikkei 225: -0.30% to 13884.1                   - ASX200: -0.25% to 3388.7
- India NIFTY: -0.76% to 5871.5                    - S&P500: -0.18% to 1582.2

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

We approach May with tredipation, especially with the old investment adage “Sell in May and go away” at the back of our minds. Have markets raced ahead of fundamentals?

Increasingly, we have more signs that the global economy is mired in a soft patch. Recall the slew of disappointing PMI data from US, EZ and China released last week. The pace of manufacturing expansion has eased in US and China, while EZ remains mired in a recession with Germany dragged down to the dark side. For the US, while March 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. Weaker-than-expected 1q13 real GDP growth as well as April consumer sentiment in the US further validated our thesis of a soft patch in 1H13.

Still, expectations of an ECB rate cut this week (2nd May) are likely to lend support to market. Though there is a risk that markets might buy the rumour and sell the news. Disappointing EZ PMIs (esp Germany) have increased the odds of a rate cut at the next monetary meeting on 2nd May. We are pencilling in a possible 25 bps cut in refinancing rate, with no change to the deposit rate floor. Though, we caution that a rate cut –even if materialise- may not actually boost the real economy especially when banks are still wary of lending to firms (particularly SMEs) based on the recent quarterly ECB bank survey.

Furthermore, odds of an early Fed LSAP withdrawal have reduced on the back of the softer economic and inflationary conditions.

For Japan, the 100 level still remains elusive for the USD/JPY. Consistent with our expectations, there were no new major policy announcements on Fri monetary policy meeting.  Reckon that BoJ might have run out of ammunition after its shock and awe campaign earlier in April. Nonetheless, we are cautiously optimistic about Japan (Nikkei) 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.

Is HSI turning bullish? HSI broke above the 22.5k key resistance level as well as 50dma. Looks set to challenge the 23k level next. But it’s not likely to be a straight route up in view of the bearish pin bar printed last Fri. For HSCEI, any technical rebound might be limited by the 11k resistance level.

STI hit fresh highs (5yr high) again. Regular readers would know this trajectory has been within our expectations. Looking ahead, STI is on track to challenge the 3400 psychological hurdle and subsequently 3485 peak. Key support pegged at 3320/3250.

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

Macro Data:

In US, the economy expanded 2.5% q-q saar in 1q13, significantly faster than growth of 0.4% registered in the preceding quarter, but still undershot market's expectations by around 0.5%-pts. The weaker-than-expected GDP growth was largely due to a 4.1% decline in government expenditure where defense spending was likely weighed down by the sequestration. Separately, the Uni. of Michigan consumer sentiment index was revised upwards by 4.1pts from prelim estimates to 76.4 in April, but still declined 2.4pts m-m from March. (by Ng Weiwen)

In Singapore, manufacturing output rose 6.2% m-m sa in March, reversing from 2 consecutive months of contraction. On a y-y basis, manufacturing output declined 4.1% y-y, but that is largely due to a high base effect last year. Ex-BMS, manufacturing output was flat m-m sa. Some incipient signs of recovery in the electronics cluster. The electronics cluster - which accounts for around a third of total manufacturing output- continued to decline by 9.8% y-y 3mma in March, easing from the  13.5% contraction in the preceding month. (by Ng Weiwen)

In China, industrial profits growth slowed to 5.3% y-y in the first 3 months ended in Mar, compared to the 17.2% y-y in the first two months through Feb. The slower growth is mainly due to the slowdown in energy related and auto sectors. The underperforming data further adds to uncertainty to China’s economic recovery. We look to the PMI data at the start of May to draw further conclusion on China’s recovery momentum. (by Roy Chen)

In Japan, CPI fell by 0.9% y-y in Mar, compared to a market expected 0.8% y-y drop and prior 0.7% y-y drop in Feb. CPI ex food and energy fell by 0.7% y-y, compared to the 0.8% y-y drop in Feb. Despite the recent aggressive monetary loosening by BOJ, the CPI data shows that the inflation is yet to come back. Following the monetary loosening, the Yen has depreciated by almost 30%, which would lend support the nation’s export sector. (by Roy Chen)

In South Korea, consumer confidence stepped down to 102 in Apr from 104 in Mar, indicating a weakening consumer confidence. The recent sharp decline is likely to undermine South Korea’s sector, which is the major pillar of the nation’s GDP.  (by Roy Chen)

Regional Market Focus

Singapore

• The benchmark STI traded above its trading range to close at 3,348.87 (+0.33%). The 2.2bn shares traded were worth S$1.4bn in value.
• Our analyst maintained his positive view on Capitaland and expects strong revenue recognition in the next 2yrs due to sales achieved over the past quarters. Continued interest in dividend yielding stocks has prompted our analyst to upgrade his recommendation on M1 to Accumulate (previously Neutral).
• 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.

• Thai stocks stayed in the green throughout the session last Fri after data showed a drop in US initial jobless claims. Gains were led by buying in big-cap property counters on speculation of an interest rate cut.  
• Most market-moving factors look bearish today as weaker-than-expected US 1Q13 GDP growth of 2.5% dampened appetite for risk assets and possible baht measures continued to weigh on sentiment. The Bank of Thailand will hold a special meeting tomorrow with measures to tackle the baht expected to come out of the meeting. Policy rate cut is ruled out after the Bank of Thailand has taken a clear stance against the Finance Ministry’s rate cut option. The likely option could be measures to curb capital flows into the bond market.
• The composite SET index is expected to trade to the downside after strong gains of nearly 30 points over the past two sessions.
• Resistance for the composite SET index is pegged at 1587-1600 and support at 1576-1563 today.

• Benchmark index of Indonesian stocks ended lower on Friday (26/04), as most Asian markets declined after Japan’s central bank refrained from announcing any fresh monetary easing measures. The Jakarta Composite Index (JCI) shed 16.016 points, or 0.32%, at 4,978.507. The decline on Friday included five of the 9 major industry groups, with Miscellaneous Industry sector plunged 1.57%, Infrastructure sector fell 1.28%, and Consumer Goods sector trimmed 0.75%. The LQ45 index fell 5.890 points, or 0.69% at 841.934, with 18 of its 45 blue-chip components finished in red. 150 shares advanced, 98 shares tumbled, 223 shares remained unchanged Friday on the Indonesia Stock Exchange, where 5.34 billion shares worth IDR 6.17 trillion traded on the regular board. Foreign investors posted net sale of IDR 217.58 billion.
• Indonesian stocks will likely move in mixed tones today, with lack of momentums from global equity markets. We expect the Jakarta Composite Index (JCI) to be traded sideways, with support and resistance at 4,960 and 5,015 each.

• The Colombo bourse concluded the day in a confident manner having surged positive for past two trading days as well, further the ASPI touched the 6,000 levels during the day reaching its 7 months high. This was mainly as a result of the active participation of the investors seen on most parts of the trading day. The benchmark ASPI Index closed at 5,962.17 within the positive side adding 28.44 points or 0.48%; and the S&P SL20 Index closed positive at 3,359.36 gaining 0.85 points or marginal 0.03%. The turnover for the day was LKR 1.35Bn indicating an increase of 37.92% against the previous trading day. A total of 105.48Mn shares changed hands resulting in a decrease of 23.74% against the previous trading day. Price gainers outnumbered the price losers by 148:7. Foreign participants appeared to be bullish within the day having recorded an inflow of LKR 327.59Mn while extending the year to date net foreign inflow to record LKR 8.59Bn.

• The Australian share market on Friday closed slightly lower despite commodity stocks staging a comeback. The benchmark S&P/ASX200 index was down 4.9 points or 0.1 per cent to 5,097.5.
• Today (29/04/13), the local market looks set to open relatively flat following a mixed performance on Wall Street overnight after a mediocre report on US economic growth and the latest batch of uneven corporate earnings reports. The SFE Futures 200 is pointing upwards 6 points or 0.11 per cent to 5,113.
• In economic news on Monday, presentations by BHP Billiton, Rio Tinto, Xstrata and Minerals Council of Australia will feature in the Senate Economics Legislation Committee's public hearing into the development and operation of the Minerals Resource Rent Tax (MRRT).
• In equities news, OceanaGold March is expected to post its quarter financial and operational results.

• Hong Kong stocks rose, with theHang Seng Index heading for its highest level since March, as banks and Internet operator Tencent Holdings Ltd. (700) climbed. Industrial companies declined after data showed the pace of profit growth slowing.
• The Hang Seng Index rose 0.2 percent to 22,601.15 as of 9:59 a.m. in Hong Kong, with about five stocks climbing for every four that declined. The Hang Seng China Enterprises Index of mainland companies listed in the city slid 0.2 percent to 10,816.90.
• Trading volume on the Hang Seng Index was 20 percent less than the 30-day intraday average. Mainland equity markets closed through May 1 for public holidays. (Source: Bloomberg)

Morning Note

Company Highlights

LionGold Corp Ltd announced that it proposes to convene a Special General Meeting to obtain approval in general meeting for  the proposed grant of a  general mandate to allot and issue Shares. The Proposed Additional Share Issue Mandate, if approved, will empower the Directors to issue new Shares or convertible securities in the capital of the Company (whether by way of bonus issue, rights issue or otherwise), subject to the following limitations namely, that the aggregate number of new Shares and convertible securities that may be issued must not be more than 50% of the total number of issued shares (excluding treasury shares) in the capital of the Company, of which the aggregate number of new Shares and convertible securities issued other than on a pro-rata basis to Shareholders must be not more than 20% of the total number of issued shares (excluding treasury shares) in the capital of the Company. (Closing price: S$1.165, +3.556%)

Cacola Furniture International Limited deems it appropriate to issue a profit warning statement in respect of the financial results of the Company and its subsidiaries for the financial year ended 31 December 2012. The financial results of the Group for FY2012 is expected to report a loss which was attributable to, inter alia, the decrease in the number of sales orders in 2012 and the increase in operating costs in challenging business climate, particularly in China. (Closing price: S$0.026, -%)

TPV Technology Limited announced that it may record a substantial reduction of consolidated profits or a net loss for the three months ended 31 March 2013 as compared to that of the corresponding period in 2012 due to slower sales and phasing out of 2012 products. In the coming quarters, the Group will continue to launch new models to drive sales and enhance profit margins. (Closing price: S$-, -%)

Source: PhillipCapital Research - 29 Apr 2013