Morning Market Commentary

- STI: +0.32% to 3443.8                                 - SET: +0.08% to 1622.5
- JCI: +0.33% to 5105.9                                 - KLCI: +0.36% to 1772.4
- HSCEI: +0.71% to 11347.4                         - Hang Seng: +0.47% to 23321.2
- Nikkei 225: +2.93% to 14607.5                   - ASX200: +0.46% to 3409.0
- India NIFTY: +0.21% to 6107.3                  - S&P500: +0.43% to 1633.7

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

A race to the bottom among major currencies? We raised this possibility in our morning calls and GMAS reports as early as late last year. BoJ started the ball rolling by declaring its intention (in early Apr 2013) to double the monetary base in 2yrs (from 138tn at end-CY12 to 270tn at end-CY14). Subsequently, ECB and RBA cut its main refinancing rate by 25 bps to record lows. RBNZ intervened (a rare occasion!) to temper the appreciation of the Kiwi. And then, BoK –stunned the markets- by also cutting rates by 25 bps. So in short, we are expecting to see a trade war in Asia Pacific going on via FX devaluation and intervention as well as rate cuts.

Thus, in this instance when economics and markets diverge, central bank rules. Thus, we are still OW equities as (i) economic activity has not really fallen over the cliff (ii) tail risks have actually receded and (iii) G4 central banks are undertaking synchronised monetary easing. Thus, equities should still command a decent risk premium over fixed income (specifically Treasuries and investment grade issues).

But psst.. do note that the Fed has renewed talks of exiting from the US$85bn/mth LSAPs, though there are at least two question marks: When to start? How to manage market's expectations from such an exit? Look at the upcoming circuit of Fed speeches as well as June FOMC (which has an accompanying media conference) for greater clarity on this front.

Consistent with our base case, the USD/JPY punched through the psychological 100 level and consequently the Nikkei soared above its upper bollinger band on Friday. Looking ahead, expect the 100 level to be re-tested for the USD/JPY. Notwithstanding the absence of fresh catalysts (in the near term), we reckon the Nikkei is likely to trudge higher on account of 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. Already, there are signs of the Japanese economy humming again with better-than-expected readings in manufacturing (PMI at 13-mth high) as well as household consumption.

STI is on track to challenge the 3485 and possibly 3600 level 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 Philippines, exports inched up 0.1% y-y in March, reversing from the 15.6% decline in the preceding month. Electronic exports continued to slump 22.3%, following the 36.5% contraction registered in the preceding month.

Regional Market Focus

Singapore

• The benchmark STI closed higher at 3.443.77 (+0.32%). The 2.3bn shares traded were worth S$1.6bn in value.
• Based on a Business Times article, total Q1 earnings of SGX firms was down 8.4% y-y. Overall, earnings were mixed. Of the 207 listed companies that have reported thus far, 105 had better earnings, while 101 fared worse y-y. 
• 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 held around 1620 points throughout a volatile session last Fri in the absence of fresh trading cues to drive the market higher but eyes remained on possible baht measures after many central banks cut policy interest rates.  
• In the near term, the market should continue to receive a boost from first-quarter earnings plays and return of foreign buying to the tune of up to Bt2.4bn last Fri but further upside appears more limited as the quarterly earnings season is about to come to an end during the middle of this week.
• Even though the Thai baht moved back to hold around 29.77 to the US dollar, eyes should remain on baht measures following interest rate cuts by major central banks around the globe
• Major resistance for the SET index is seen at 1650 +/- and sporadic bouts of selling are likely to increase along the way. 
• Today we peg resistance for the SET index at 1630-1635 and support at 1620-1607.

Indonesia

• The Jakarta Composite Index (JCI) closed above 5,100 on Friday (10/05), after hovering between small losses and gains in the second half of the trading day. The benchmark index of Indonesia stocks rose 16.602 points, or 0.33%, at 5,105.937. For the week, the JCI gained 3.66%, and year-to-date, it climbed 17.47%. The advance on Friday included six of the 9 major industry groups, led by Miscellaneous Industry sector with 1.14%-gain, Construction, Property and Real Estate sector with 0.89%-advance, and Trade and Services sector with 0.68%-rise. The LQ45 index added 2.103 points, or 0.24%, to end at 861.473 with 21 of its 45 blue-chip constituents finished in green. 147 stocks rose, 123 stocks fell, and 204 stocks remained unchanged Friday on the Indonesia Stock Exchange, with volume on the regular board totaled near 4 billion shares worth IDR 5.27 trillion. Transactions by foreign investors accumulated to a net selling of IDR 63.24 billion.
• The Jakarta Composite Index (JCI) look set for another climb today, extending last week’s gains as sentiments turned upbeat in Asia this morning after the Yen fell further against the US dollar. We expect the JCI to trade higher today, with support and resistance at 5,069 and 5,134 respectively.

Sri Lanka

• The Colombo bourse reacted positively towards the key changes which were done to the policy rates today, which assisted both indices to accelerate further. During the day the Benchmark ASPI reached an intraday high of 6,290.88 just 10 points away from crossing the 6,300 mark. However, the ASPI index closed     at     6,250.00    up by11.29 points or 0.18%; further the index closed positive for the past 7 trading days, accruing a total of 296.81 points or 5%. The S&P SL20 index gained 0.12% or 4.39 points compared to the previous day to end the day at 3,530.90 up by 4.39 points or 0.12% while setting a new all-time record. Further, the S&P SL20 gathered 194.78 points or 5.70% during the past 13 trading days.
• The total market turnover for the day was LKR 1.47Bn, a drop of 31.14% against the previous trading day. In terms of turnover contribution, the spot-light fell on the Beverage Food & Tobacco sector (BFT) under the sectorial round-up having provided LKR 449.52Mn which accounts to 31% of the day’s total turnover; DIST was the main supporting hand to the sectorial turnover. Bank Finance & Insurance sector (BFI) provided LKR 432.28Mn whilst turning out to be the sector capturing the highest investor interest with 3,668 trades out of the total 14,099 trades being noted within the day. Moreover the sectors BFT and BFI collectively accounted to nearly 60% of the total turnover for the day. Traded share volume for the day witnessed a dip of 21.62% compared to the previous day to record 58Mn. Foreign interest on the bourse seem to be continuing, where purchases worth LKR 476.37Mn and sales of LKR 191.37Mn were recorded which in turn resulted in a net foreign inflow of LKR 285Mn.

Australia

• The Australian share market has closed at levels last seen almost five years ago as a weakening local currency boosted the big miners. But the banks finished in negative territory, despite the S&P/ASX 200 index closing at its highest point since June 2008.
• A fall in the Australian dollar to an 11-month low of 100.47 US cents early on Friday helped BHP Billiton close 0.61 per cent, or 21 cents firmer, at $34.75 and Rio Tinto gained 0.43 per cent, or 25 cents, to $58.45. CMC Markets chief market analyst Ric Spooner said the weakening Australian dollar helped the big mining companies, whose profits and revenue were nominated in US dollars. (Source: ninemsn.com)

Hong Kong

• Local stocks swung between gain and loss. The HSI and HSCEI climbed 109 points and 80 points to 23321 and 11347 respectively. Market Turnover 55.55 billion.
• As we expected, the HSI rebounded from the bottom of 21500 points level, nearly 2000 points rebounded, we believe it is time for the market to correction, we suggest investors to increase the weighting on cash, aggressive investors are also suggested to use derivatives for grasping the short term downward trend. However, we believe it is a short term correction, we maintain a cautious bullish view for long term.
• Technically, the HSI is expected to gain a support from 22800 level, major resistance will be 23800 level.

Morning Note

Company Highlights

UOL Group is offering S$2.55 in cash per share for its exit offer and delisting proposal for the Pan Pacific Hotels Group. UOL owns 81.57 per cent of Pan Pacific Hotels and United Overseas Bank, 7.99 per cent. UOL and Pan Pacific Hotels said in a joint announcement: "This implies a free float of no greater than 10.44 per cent of the total number of issued shares. "The exit offer will provide an exit option for those shareholders who wish to realise their entire investment in the shares but find it difficult to do so as a result of the low trading liquidity of the shares and low free float of the shares." (Closing price: S$7.26, -%)

IPC Corporation Limited announced it has entered into an agreement to purchase a business hotel in Naha, Okinawa, in Japan. Completion of the purchase and delivery of the hotel to the company is by July 2013. The hotel is currently being operated under the name of Okinawa Port Hotel – a 10-storey building, has 193 guest rooms. The acquisition cost cannot be disclosed as there is a non-disclosure agreement signed with the seller, the group signed. The purchase is partially funded by bank borrowings, it added. The Okinawa Hotel shall be leased to Nest HOTEL Japan Corporation (NHJ) with a fixed term till 30 June 2018. (Closing price: S$0.152, +1.333%)

LionGold Corp Limited bought a 13.20% stake in Australia-listed Unity Mining Ltd for A$6.7 million (about S$8.7 million). The 92.64 million Unity Mining shares were acquired on the open market at A$0.072 a share. The group intends to continue with the rapid expansion of its gold business through organic growth and acquisitions. (Closing price: S$1.14, -0.870%)

Tiger Airways Holdings Limited reported that for the 12 months to April 2013, its traffic increased 21.0 per cent to 8.1 billion revenue passenger-kilometres (RPK), more than keeping pace with a 16.5 per cent increase in capacity to 9.7 billion available seat-kilometres (ASK). Consequently, passenger load factor was 3.2 percentage points higher at 84.0 per cent. The number of passengers carried grew 13.4 per cent to 4.4 million, compared to 3.9 million in the previous period. For the month of April 2013, Tiger Singapore recorded a 20.7 per cent increase in traffic to 712 million RPK, while capacity increased 26.5 per cent increase to 879 million ASK. Consequently, year-on-year passenger load factor was 3.9 percentage points lower at 81.0 per cent. The number of passengers carried grew 14.2 per cent year-on-year to 378,000 passengers. (Closing price: S$0.66, -0.752%)

Source: PhillipCapital Research - 13 May 2013