Morning Market Commentary

- STI: +1.02% to 3402.4                                 - SET: -0.54% to 1589.2
- JCI: -1.32% to 4994.05                                - KLCI: -0.24% to 1713.5
- HSCEI: -0.85% to 10825.4                          - Hang Seng: -0.30% to 22668.3
- Nikkei 225: -0.76% to 13694                       - ASX200: +0.02% to 3402.9
- India NIFTY: +1.17% to 5999.4                  - S&P500: +0.94% to 1597.6

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Sell (or rather take profit) in May, but please don’t go away. Markets have raced ahead of macroeconomic fundamentals and risk assets (such as equities) seem ripe for profit taking!

But don't fight the ECB. In addition to reducing main refinancing rate by 25bp (consistent with our expectations) and marginal lending rate by 50bps, ECB (or rather Draghi) was willing to do more and even kept an "open mind on negative deposit rates." Though, we caution that a further 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.

Still, even if markets sell off in May, please don’t go away. Pull-back in equities offers an attractive opportunity to accumulate our OWs in US, China-HK and ASEAN economies such as ID, PH, TH and SG.

Consistent with our guidance (on this page yesterday), weaker-than-expected US (ADP employment, ISM & Markit manufacturing PMI) as well as Chinese (NBS & HSBC PMI) macro data weighed on Asian markets (HSCEI, HSI, Nikkei) on Thurs when most markets re-open after the Labour Day hols.

But don’t despair. While the HSI pulled back, the case for a bullish upturn in the HSI remains intact! Specifically, as long as the HSI remains above the 22k support level, the HSI is on track to challenge the 23k level next after breaking above the 22.5k key resistance level as well as 50dma.

The STI (one of our Over-weights) has remained resilient and even trudged higher while other markets have pulled back. This has been consistent with our guidance reiterated on this page.  STI cleared the 3400 psychological hurdle (albeit slightly). Looking ahead, STI is on track to challenge the 3485 peak as long as it remains above 3250 key support.

Looking ahead, do tread with caution. Key event risks on Fri and over the weekend:

(i) US Non-Farm Payrolls (3rd May, 10.30pm SGP time) –Recall we highlighted yesterday that the key takeaway from April FOMC statement was that the pace of asset purchases could be -either increased or decreased- depending on macro conditions (i.e. labour market as well as inflation expectations). Thus, all eyes will be on Apr NFP data. We reckon that the labour market is likely to be still sluggish. With ADP employment undershooting, NFP could come in weaker-than-expected. That does not bode well for consumer and business expenditure in 2q13, reinforcing our view that the US economy is undergoing a soft patch. But then the recent decline in initial jobless claims to a 5yr low provides a glimmer of hope.

(ii) Malaysia 13th GE (5th May) – OW Malaysia (KLCI) if BN wins a strong mandate. Beware of knee-jerk reaction when markets reopen on 6th May if BN register a weaker performance than the 12th GE and worse still fail to garner a simple majority.

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

Macro Data:

In the US, the labour market is healing (albeit slowly). Initial jobless claims slumped by 18k wk-on-wk to 324k (a 5yr low!) for the week ending Apr 27.  The 4-week moving average of claims declined by 16k, following the 4k contraction in the preceding week. This contrasts with the ADP private sector payrolls rose -at the slowest pace in 7 months- by 119,000 in April (as compared to gains of 131,000 in March). This weaker-than-expected ADP reading suggests that risks to the upcoming non-farm payrolls are to the downside. A sluggish labour market does not bode well for consumer and business expenditure in 2q13.  (by Ng Weiwen)

In Singapore, manufacturing activity continued to expand in April -albeit at a slower pace. Specifically, the headline PMI declined by 0.3pts m-m to 50.3. Similarly, the pace of expansion in the electronics cluster also eased with the electronics PMI falling 0.7pts m-m to 51.2 in Apr. Nonetheless, there are silver linings ahead. Recall a net weighted balance of 12% of manufacturers expect business conditions to be more favourable over the next six months (Apr-Sept).  In the electronics cluster, a net weighted balance of 18% of manufacturing firms also shared the same positive sentiment. (by Ng Weiwen)

In Euro zone, ECB announced to cut the benchmark refinancing rate by 25 bps to 0.5%, a record low, from prior earlier 0.75%. This measue takes the ECB closer to exhausting its conventional policy tools, raising the prospect of a negative deposit rate or new non-standard measures. Draghi said the ECB will continue to lend banks as much money as they need at least through mid-2014, extending the policy by more than a year. Separate reports show that the region’s manufacturing PMI is hovering at a low level, reporting 46.7 in Apr, compared to 46.5 reading in Mar, indicating a contraction in the region’s manufacturing sector. Germany’s manufacturing PMI rose slightly to 48.1, still a contraction, from the 47.9 reading in Mar. (by Roy Chen)

In China, HSBC manufacturing PMI fell to 50.4 in Apr, from the 51.6 reading in Mar, further adding to case that the recovery momentum is weakening. We expect the government to accelerate pace of economic reforms to bolster growth. (by Roy Chen)

In Taiwan, HSBC manufacturing PMI dropped to 50.7 in Apr from the 51.2 reading in Mar, indicating a slower expansion in the island’s manufacturing activities. (by Roy Chen)

In South Korea, HSBC manufacturing PMI rose to 52.6 in Apr, from 52.0 in Mar, indicating an unexpected accelerating expansion in the nation’s manufacturing sector, amid an uncertainty of geographical tension with North Korea and increasing competition that exports sector faces from a cheaper Japan product due to weak yen. (by Roy Chen)

Regional Market Focus

Singapore

• The benchmark STI close higher to 3,402.39 (+1.02%). The 2.2bn shares traded were worth S$1.9bn in value.
• DBS rallied strongly to close up 4.5% after reporting a strong set of numbers before market opening yesterday. However, our analyst believes that the positives are mostly priced in and downgraded his recommendation on the stock to 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.

• The composite SET index rallied to test a key 1600-point barrier in the morning session on Thu before the market reversed course to fall sharply in the afternoon trade amid rumors about the dismissal of BOT governor. The BOT said it has measures to tackle the strong baht if necessary.
• Short-term volatility is likely to persist in the Thai stock market today ahead of a three-day holiday weekend. The composite SET index is in its attempts to test a key psychological level of 1600 but it is unlikely to break through, in our view. Today we expect a trading range of 1576-1602 for the SET index. External sentiment looks bullish today after data showed better-than-expected US jobless claims data and ECB slashed its policy rate by 25 bps in line with market expectations, triggering a rebound in commodities, especially crude oil. In Thailand, the court’s rejection of an injunction against the bidding for the government’s Bt350bn water management projects may likely ease market concerns.   
• Key factors to watch include US non-farm payrolls data due out tonight and possible baht measures from BOT.
• Today we peg resistance for the composite SET index at 1600-1612 and support at 1583-1570.

• The Jakarta Composite Index (JCI) gained 26.848 points, or 0.53%, to finish at a new record high of 5,060.919 on Wednesday (01/05), after data released by the central bureau of statistics showed inflation cooled down in April, despite mostly lower closes in Asia stock markets after weaker than expected manufacturing data from China. The advance on Wednesday was supported by five of the 9 major sectors, led by Construction, Property and Real Estate sector with 2.97%-gain, Basic Industry sector with 1.04%-advance, and Financial sector with 0.85%-rise. The LQ45 index added 2.917 points, or 0.34%, to end at 860.037 with 18 of the 45 blue-chip constituents closed in green. From the economic front, inflation in Indonesia cooled down to 0.1% (mom) in April, or 5.57% year-on-year, lower than economists’ expectations. The decline was mainly due to decreased food prices. 165 shares climbed, 118 shares fell, and 190 shares remained unchanged Wednesday on the Indonesia Stock Exchange. Volume on the regular board reached 5.19 billion shares worth IDR 5.47 trillion. Foreign investors’ transactions accumulated to a net purchase of IDR 7.33 billion.
• The Jakarta Composite Index (JCI) will likely decline today, amidst negative tones in Asia after US stock markets plunged overnight on concerns the Federal Reserve may limit its stimulus measure depending on the country’s economic progress. We expect the JCI to trade lower today, with support and resistance each at 4,995 and 5,096.

• The Colombo bourse exhibited a slight slowdown during the day which in turn result the indices to conclude on a mixed note; this was having closed within the green space for the past 4 trading days where both indices contentedly closed positive. The benchmark ASPI Index closed negative at 5,953.19 losing 14.43 points or 0.24%; this was having recorded a positive closures for the past four trading days while accruing 95.19 points or 1.61%. However, the S&P SL20 Index closed on the positive side for the 6th successive trading day at 3,365.79 gaining 2.65 points or tiny 0.08%. The market capitalization as at the day’s closure stood at LKR 2.28Tn resulting in a year to date gain of 5.22% and the market PER and PBV stood at 16.08 and 2.19 respectively. The turnover for the day amassed to record LKR 876.33Mn indicating a gain of 3.52% against the previous trading day. Under the sectorial round-up Bank Finance & Insurance and Land & Property sectors stood out to be the top contributors for the day with subscriptions worth LKR 283.31Mn and LKR 279.65Mn respectively. Further the two sectors made a significant 64.24% contribution to the day’s aggregate turnover value. During the day, a total of 32.21Mn shares changed hands resulting in a decrease of 50.69% against the previous trading day. Price losers were ahead of the gainers while the loser to gainer ratio was being recorded at 138:70. Foreign participants were bullish during the day for the 3rd successive trading day resulting in a net foreign inflow of LKR 85.80Mn as a result of foreign purchases and sales worth LKR 204.04Mn and LKR 118.24Mn respectively. In regard to the local FOREX market, the USD closed the day at LKR 128.38/- selling and LKR 125.32/- buying.

• The Australian share market on Thursday closed 0.7 per cent lower, with concerns about global economic growth pulling down resources stocks. The benchmark S&P/ASX200 index was down 36.2 points or 0.70 per cent to 5,130.00 points.
• Today (03/05/13), the Australian market looks set to open higher following strong gains on Wall Street after an expected European Central Bank interest rate cut and a surprisingly good US jobless claims report.
• In economic news on Friday, the Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (PSI) for month just ended is due to be released.
• In equities news, Wespac is expected to post half year results while Alumina has its annual general meeting scheduled.

• Local stocks declined. The HSI and HSCEI dropped 68 points and 92 points to 22706 and 10825 respectively.
• Due to the China April HSBC PMI missed market expectation, the HSI consolidated around 100 days SMA. 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

Ezra Holdings Limited announced that its subsea division, EMAS AMC, has been awarded a subsea engineering, procurement and offshore construction contract from Statoil for the Smrbukk South Extension’s project. The contract is valued at approximately US$75 million.  (Closing price: S$0.955, -%)

GuocoLand unveiled details of its first integrated mixed-use development in Singapore at the white site above Tanjong Pagar MRT station. Named Tanjong Pagar Centre, the 290-metre development will be Singapore’s tallest building.  The development sits along Choon Guan Street, Peck Seah Street and the new Wallich Street in the heart of Tanjong Pagar, which has been earmarked for development as Singapore’s next business and lifestyle hub in the Central Business District. It will also be the gateway to the future waterfront city that will replace the existing Tanjong Pagar ports. (Closing price: S$2.28, +0.885%)

Changjiang Fertilizer Holdings Limited provided profit guidance on the Group’s results for the first quarter (“Q1FY2013”) ended 31 March 2013. As a result of lower demand of our products, the Group expects to report significantly lower revenue and a loss in its unaudited first quarterly results of the Group for the three months ended 31 March 2013, as compared to the corresponding period in 2012.  (Closing price: S$-, -%)

Source: PhillipCapital Research - 03 May 2013