Morning Market Commentary

- STI: +0.37% to 3382.3                                 - SET: -0.64% to 1578.95
- JCI: +1.35% to 4991.9                                 - KLCI: +3.38% to 1752.0
- HSCEI: +1.44% to 11001.8                         - Hang Seng: +0.99% to 22915.1
- Nikkei 225: -0.76% to 13694                       - ASX200: +0.96% to 3435.66
- India NIFTY: +0.46% to 5971.1                    - S&P500: +0.19% to 1617.5

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

A quiet week ahead (in terms of macro data) after ECB, FOMC meetings as well as PMI and non-farm payroll (NFP) data releases last week. This week, RBA (today), Bank of Korea and Bank Negara (9 May) will meet and we reckon all three central banks are likely to stand pat.

The DJIA was broadly flat on Mon, forming a doji at the session close (signalling indecision in the markets). Macro fundamentals and markets diverge, but don't fight the central banks.  Specifically, ECB President Draghi reiterated that ECB stood ready to act again if economic indicators continue to disappoint. Recall Draghi has also hinted that he is keeping an open mind on negative deposit rates after a 25bp in main refinancing rates last week.

Meanwhile, S&P500 continued to inch up (albeit slightly) on Mon. Having broke above the psychological 1600 resistance (record high) on the back of better-than-expected NFP, so long as S&P500 maintains above 1600 level, a bearish double top is increasingly unlikely.

What is the outlook for Malaysia after the 13th GE?

For Malaysia, we are marketweight for now, notwithstanding the relief rally post-elections. Specifically, the KLCI gapped up on the back of an  alleviation of uncertainties. We will reassess our rating on Malaysia once there is greater certainty on the policy front. BN was returned to power at the 13th GE (5th May) but was denied a strong mandate (i.e. a two-third majority) again! Specifically, while BN attained a simple majority (133 out of a total of 222 parliamentary seats) but that was fewer than the 140 seats garnered in the previous 2008 elections.

Will Najib survive BN (or more specifically UMNO)?  Specifically, Najib might face a leadership challenge after failing to garner a strong mandate (or even improve on 2008 dismal performance) despite massive social handouts as well as economic building and reforms.

Furthermore, the Economic Transformation Program and Government Transformation Program -major pillars of the domestic demand story- may be confronted with headwinds after Barisan Nasional failed to re-claim a strong mandate.

Thus, this lingering policy uncertainty caused us to be hesitant in upgrading Malaysia to an OW for now.

HSI is on track to challenge the 23k level. Spot On! We alerted clients on incipient signs of the bullish upturn in the HIS as early as last week (29 Apr). 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. Look out for upcoming macro risk events ahead- upcoming Chinese trade (Wed) and inflation (Thurs) data this week.

For the STI, we expect some struggle along the 3400 psychological hurdle. If the 3400 level is decisively cleared, STI is on track to challenge the 3485 peak as long as it remains above 3250 key support.

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

Macro Data:

In Indonesia, economic expansion eased from 6.11% in 4q12 to 6.02% in 1q13, weighed down by a slow down in investment as well as private consumption. With downside growth risks possibly outweighing upside inflation risks, Bank Indonesia is likely to stand pat at this juncture. (by Ng Weiwen)

In the EZ, retail sales continued to ease in March. Specifically, retail sales slumped 2.4% y-y in March, steeper than a 1.7% decline in the preceding month, to register the weakest reading since end 2012. Looking ahead, consumer spending is likely to remain sluggish at best on the back of weak consumer sentiment (as reflected by the recent sentix index) as well as ongoing household deleveraging. (by Ng Weiwen)

In China, HSBC service PMI fell significantly to 51.1 in Apr, marking the lowest reading since Aug 2011, from the 54.3 reading in Mar, indicating sharp slowdown in expansion of the nation’s service sector. The slowdown is in line with the official non-manufacturing PMI reported earlier and points to the risk that China’s economic recovery might be losing momentum. We expect the government to announce more accommodative policies to bolster growth. The nation’s inflation is still tame and the government has to balance the risks of rising property price and weak economic growth in providing loosening in the monetary front. (by Roy Chen)

In Taiwan, CPI growth eased to 1.04% y-y in Apr, lower than the market expected 1.26% y-y pace, after the 1.39% y-y pace in Mar. The island’s economy has benefited from China’s economic recovery earlier. The central bank is currently holding the benchmark interest at 1.875%. The significantly eased inflation pressure has allowed scope for the central bank to conduct interest cut when necessary. (by Roy Chen)

In Australia, retail sales unexpectedly fell by 0.4% m-m in Mar, compared to the market expected minor 0.1% m-m gain, after the 1.3% m-m drop in Feb. The faltering retail sales reading points to a weak domestic consumption. A separate report shows that inflation reported 2.1% in Feb, close to the lower boundary of central bank’s target 2-3% range, indicating scope of further loosening if necessary. The central bank is currently holding benchmark interest rate at 3.0%, match the half century low. (by Roy Chen)

Regional Market Focus

Singapore

• The benchmark STI closed higher to 3,382.29 (+0.37%). The 2.1bn shares traded were worth S$1.4bn in value.
• According to a report by The Business Times, Golden Agri. could be ripe for a buyout by its largest shareholder, Widjaja family, as the stock trades at 36% below the value of its net assets.
• 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 opened sharply higher last Fri as ECB lowered its main interest rate to a record low 0.5% but earlier gains were later given up on concerns over possible baht measures before the composite SET index ended an extremely volatile session in the red.
• Volatility is likely to persist but losses of nearly 20 points during the last two sessions may set the stage for some rebound for Thai stocks today to catch up with gains in several regional markets on upbeat US economic data as the Thai stock market was closed yesterday for Coronation Day.
• Gains are however likely to be limited to 1590 as sell signals from technical indicators and MACD with bearish divergence conditions would weigh on sentiment and domestic political uncertainty amid ongoing red-shirt UDD protest against the Constitution Court and concerns over possible baht measures would further add to the gloom.
• Resistance for the composite SET index is pegged at 1587-1600 and support at 1570-1550 today.

Indonesia

• Most Indonesian stocks advanced Monday (06/05), bringing the Jakarta Composite Index (JCI) back to near 5,000, as regional indexes climbed in positive response to record high closes on US stock markets on Friday (03/05), after data showed unemployment in the US fell in April. The JCI gained 66.388 points, or 1.35%, at 4,991.871. The advance on Monday included all major industry groups, led by Consumer Goods sector with 2.34%-surge, Agriculture sector with 1.96%-gain, and Financial sector with 1.89%-advance. The LQ45 index added 12.327 points, or 1.48%, to close at 845.940, with 28 of its 45 blue-chip shares ended in green. In economic news, Indonesia’s economy grew 6.02% (yoy) in the first quarter this year, slower than 6.2% expected by Bank Indonesia, the central bank. Unemployment in Indonesia fell to 5.92% in February, from 6.32% in the same period last year. 181 shares rose, 99 shares fell, and 193 shares remained unchanged Monday on the Indonesia Stock Exchange, where 3.42 billion shares worth IDR 4.49 trillion changed hands on the regular board. Foreign investors accumulated net sale of IDR 548.94 billion.
• With lack of leads from US stock markets overnight, and after Moody’s also downgraded its outlook on Indonesia’s sovereign debt following Standard & Poor’s move last week, the Jakarta Composite Index (JCI) face negative sentiments today. We estimate the JCI to trade relatively flat with negative bias, with support and resistance at 4,848 and 5,045 respectively.

Sri Lanka

• The Bourse continues to surge up. The Colombo Bourse maintained its positive drive and ended the trading day on a cheerful sentiment resulting in both indices concluding on a positive note. Retailer participation was observed to a great extent within the day hence the resulting buying interest assisted the indices to accrue considerable gains and contentedly move upward. The benchmark ASPI index closed positive for the 3rd successive day at 6,121.17 having gathered a substantial 107.99 points or 1.80%; this was the highest index value recorded in nearly 17 months (after 1st December 2011). The S&P SL20 price index too closed positive for the 9th successive day at 3,461.12 having gained 55.13 points or 1.62% hence recording a new all-time high index value. The market capitalization as at the day’s closure stood at LKR 2.35Tn resulting in a year to date gain of 8.24% and the market PER and PBV stood at 16.55 and 2.25 respectively. The recorded turnover for the day aggregated to record a substantial LKR 4.14Bn indicating a significant increase of 369.18% against the previous trading day; this was the biggest turnover value recorded after 26th September 2012. Under the sectorial round-up, the Manufacturing sector (MFG) accounted to 83.03% of the total turnover providing LKR 3.43Bn; this was mainly supported by the subscription made by CERA. During the day investor attractions were noted on Bank Finance & Insurance (BFI) sector with 3,345 trades out of the total 12,833 trades recorded; however, BFI stood second in terms of turnover subscription. The two sectors MFG & BFI collectively made a 90.23% subscription to the total turnover. A total 67.43Mn shares changed hands resulting in a 115.60% increase compared to the previous trading day. Price gainers outpaced the price losers by 167:58. Foreign participants appeared to be bullish during the day for the 6th successive trading day resulting in a net foreign inflow of LKR 28.22Mn as a result of foreign purchases worth LKR 123.20Mn and sales worth LKR 94.98Mn; this extended the year to date net foreign inflow to record LKR 8.96Bn. In regard to the local FOREX market the USD closed at LKR 127.87/- selling and LKR 124.82/- buying.

Australia

• The Australian share market on Monday closed higher as the resources sector staged a recovery due to a jump in commodity price. The benchmark S&P/ASX200 index was up 26.7 points to 5,156.2 points.
• Today, the Australian market looks set to open higher following a mixed performance on Wall Street where the S&P500 reached an all-time high. The SFE Futures 200 is pointing upwards 26 points or 0.50 per cent to 5,153.
• In economic news on Tuesday, the Reserve Bank of Australia (RBA) holds its monthly board meeting and makes its interest decision. Meanwhile, the Australian Bureau of Statistics (ABS) releases international trade in goods and services for March data, House price indexes for the March quarter and overseas arrivals and departures figures for March. The Australian Industry Group/Housing Industry Association performance of construction index (PCI) for month just ended is also due out.
• In equities news, Coca-Cola Amatil holds its annual general meeting, Orica chief executive Ian Smith is scheduled to address an American Chamber of Commerce in Australia lunch while Virgin Australia launches a new regional airline in WA.

Hong Kong

• Hong Kong shares climbed to their highest in almost two months on Monday, while onshore China markets rose to a two-week high, buoyed by robust gains for commodities-related counters as prices in physical markets soared.
• By midday, the Hang Seng Index was up 1 percent at 22,909.6 points, its highest since March 12. The China Enterprises Index of the top Chinese listings in Hong Kong was up 1.5 percent.
• The CSI300 of the leading Shanghai and Shenzhen A-share listings rose 1 percent. The Shanghai Composite Index gained 0.9 percent, moving further from its 200-day moving average after struggling at that technical level for much of April.

Morning Note

Company Highlights

Metech International Limited announced that after the preliminary review of the Group’s unaudited financial statements for the quarter ended 31 March 2013, the Group will be reporting quarter-over-quarter and year-over-year profit growth. For the first three quarters in FY2013, the Group has realised a cumulative profit as oppose to a loss for the same period in FY2012. The attainment of profits for two consecutive quarters validates the Group’s re-organisation initiatives that started 9 months ago. These have yield positive outcomes, thus contributing to stronger financial performances. (Closing price: S$0.023, 4.545%)

Global Logistic Properties Limited announced that it has leased approximately 10,000 square metres (108,000 square feet) to a leading third-party logistics provider in Beijing. The customer is expanding its leased area with GLP in Beijing from 3,000 sqm previously. This new lease lifts the lease ratio at GLP Park Beijing ACL to 91%. (Closing price: S$2.900, 3.571%)

Xinren Aluminum Holdings Limited issued a profit warning regarding the financial results of the Group for the first quarter ended 31 March 2013. Based on the preliminary financial figures, the Group is expected to report a marginal after-tax loss for the 1Q 2013 due to weaker selling prices of aluminum products in 1Q 2013. (Closing price: S$0.285, -1.724%)

Hiap Seng Engineering Ltd announced that it has been awarded a three-year term integrated plot contract by Singapore Refining Company Private Limited to provide plant maintenance services on a cost-plus/unit rate basis for the SRC refinery located on Jurong Island. This contract is effective for the period from 1 April 2013 to 31 March 2016. Barring any unforeseen circumstances, the Group expects a positive contribution to its earnings from the contract but does not expect any material impact on the net tangible assets or earnings per share for the current financial year ending 31 March 2014. (Closing price: S$ - , - %)

CCM Group Limited announced that the Company had through its wholly-owned subsidiary, CCM Industrial Pte. Ltd., secured a contract from the National Parks Board. The Contract amounts to approximately S$6.8 million and covers maintenance and upgrading works of park facilities in conservation, Singapore Botanic Gardens, Streetscape and Horticulture & Community Gardening Divisions for a period of 3 years, commencing on 6 May 2013 and is expected to end on 5 May 2016 or until the Contract Sum is fully utilised by the NPB, whichever is earlier. (Closing price: S$0.129, 0.781%)

Innopac Holdings Limited proposed takeover offer to acquire Merlin Diamonds Limited, a diamond mining and exploration company listed on the Australian Stock Exchange, is fast gaining acceptance by Merlin shareholders. The Group announced today that as at 3 May, it has garnered acceptances representing 56.24% of Merlin’s issued and paid-up share capital in a little over one month since the Offer was opened for acceptance. Having crossed the 50% acceptance level, Innopac now reserves the right to declare the Offer unconditional. (Closing price: S$0.205, 0%)

Source: PhillipCapital Research - 07 May 2013