Morning Market Commentary

- STI: -0.43% to 3429.0                                  - SET: -0.29% to 1617.7
- JCI: -1.00% to 5054.6                                  - KLCI: +0.88% to 1787.9
- HSCEI: -2.10% to 11109.3                          - Hang Seng: -1.42% to 22989.8
- Nikkei 225: +1.20% to 14782.2                   - ASX200: +0.08% to 3492.7
- India NIFTY: -2.08% to 5980.5                   - S&P500: +0.00% to 1633.8

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Markets were jittery and most indices slipped after the Fed 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.

It did not help that sluggish Chinese industrial production as well as retail sales data suggest that the slowdown in China's growth momentum continues after a soft patch in 1q13. While we are cognisant that the Chinese economy is restructuring, this set of data release is worrying as it reflects that domestic demand (investment and consumption) is not picking up the slack. Furthermore, we are wary that though new loans continued to be extended and total social financing expanded significantly, this liquidity might not be actually flowing into the real economy.

It seems that markets also shared our concerns with the HSI and HSCEI slumping to its 10dma support. But as long as key support levels (mentioned yesterday during the webinar) are not breached, the bullish case for both indices remains intact in spite of yesterday’s retracement.

By contrast, the Nikkei continued to march higher on continued weakness of the Yen. The Yen should weaken further if Japanese investors continue to be net buyers of foreign bonds. But the USD/JPY will face strong resistance at the 103 level (based on fibs) at least in the near term.

Today, Bank of Indonesia meets. At this juncture, that Bank Indonesia is likely to continue to stand pat. Nonetheless, we reckon monetary policy should be pre-emptive and a rate hike- benchmark interest rate &/or its overnight deposit facility rate (FASBI)-  is warranted (likely within this year) in view of an impending spike in domestic inflationary pressures as fuel subsidies –which has been a fiscal strain but politically sensitive- would eventually need to be scaled back.

Notwithstanding yesterday’s pull back, STI is on track to challenge the 3485 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 US, the wealth effect could possibly in play. Headline total retail sales rose more than expected with core retail sales (ex-autos, gas, and building materials) gaining 0.5% m-m following upward revisions in both Feb and March. Pencilling possible upside to 1H GDP growth.

In China, industrial output rose from 8.9% y-y in March to 9.3% y-y in April but still missed market’s expectations. Meanwhile, retail sales accelerated –albeit slightly- from 12.6% y-y in March to 12.8% in April.

Regional Market Focus

Singapore

• The benchmark STI closed lower at 3.428.96 (-0.43%). The 2.8bn shares traded were worth S$1.5bn in value.
• Our analyst maintained Neutral on Golden Agri, and is mildly positive in its improved China operations but cite concerns on higher cost of production and taxes.
• 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

• The SET index traded in the red on Mon after its failure to break above the previous high and a lack of baht measures following the meeting among MOF, BOT and other related agencies. Unusually low trading volume also reflected a lack of conviction among investors.  
• More choppy sideways action could be in store for Thai stocks. Today the SET index may be poised for a rebound at the open after yesterday’s pullback as upbeat US retail data lifted sentiment in Asia on Tue but we believe further gains appear limited despite wild intraday swings. We expect the SET index to trade in a range of 1600-1630 points in the absence of fresh trading catalysts as first-quarter earnings season is about to come to an end during the middle of this week.
• Foreign buying spree continued but trading volume dropped below full-year averages and technical signals still pointed to the ‘sell’ side, leaving the market vulnerable to sporadic bouts of short-term profit taking along the way.
• Resistance for the SET index is pegged at 1623-1630 and support at 1613-1600 today.

Indonesia

• The Jakarta Composite Index (JCI) posted a significant loss on Monday (13/05), amid investors’ sell-offs on blue-chip shares, as most regional stock indexes turned negative on speculation that the US Federal Reserve may soon cut back its bond purchase program. The JCI shed 51.309 points, or 1.00%, at 5,054.628. All but Agriculture sector ended in red on Monday. The index of Agriculture sector gained a moderate 0.25%. On the downside, Miscellaneous Industry sector dropped 2.72%, Financial sector lost 1.72%, and Basic Industry sector fell 1.68%. The major drop on Monday was largely due to sell-offs, particularly on blue-chip stocks. The LQ45 index plunged 10.398 points, or 1.21%, at 851.075, with 32 of its 45 blue-chip components finished in red. 192 shares fell, 81 shares rose, and 201 shares stayed unchanged Monday on the Indonesia Stock Exchange. Transactions on the regular board totaled only at 3.57 billion shares worth IDR 4.95 trillion, less than the daily average volume of 4 billion shares. Foreign investors posted net sale of IDR 493.15 billion.
• The Jakarta Composite Index (JCI) will likely to move sideways with negative bias, after mixed closes on US markets overnight, with investors took cautions on the Fed’s plan to roll-back its stimulus program. We expect the JCI to trade higher today, with support and resistance at 4,990 and 5,135 respectively.

Sri Lanka

• The Colombo bourse opens the week on a negative sentiment. The market ended the day on a negative note as a result of sluggish participation of investors seen on most parts of the trading day which resulted in both indices conclude within the red terrain. The benchmark ASPI Index closed at 6,239.03 losing 10.97 points or 0.18%; this was having closed positive for the past 7 trading days accumulating 296.81 points or 5%. The S&P SL20 Index too closed negative at 3,518.85, indicating a drop of 12.05 points or 0.34%; this was after closing positive for the past 13 trading days which accumulated 194.78 points or 5.70%. The market capitalization as at the day’s closure stood at LKR 2.39Tn resulting in a year to date gain of 10.32%.The market PER and PBV were 16.86 and 2.30 respectively. The daily turnover amounted to record LKR 535.12Mn, a dip of 63.66% when compared to the previous trading day. Diversified Holdings (DIV) topped the list under sectorial summary contributing LKR 200.82Mn accounting to 38% of the day’s total turnover value. However, investor attractions were vastly on Bank Finance & Insurance (BFI) sector with 2,382 trades out of the total 8,312 trades being noted. BFI emerged second under the sectorial round-up having provided LKR 135.18Mn to daily turnover. Moreover, the two sectors DIV & BFI collectively made account to nearly 63% of the aggregate turnover. During the day, a total 24.64Mn shares changed hands resulted in a drop of 57.52% against the prior trading day. Price losers outperformed the price gainers by 127:76. Foreign participants appeared to be bullish during the day for the 3rd successive trading day resulting in a net foreign inflow of LKR 152.99Mn, while extending the year to date net foreign inflow to record LKR 9.75Bn. In regard to the local FOREX market, the USD closed at LKR 127.67/- selling and LKR 124.62/- buying.

Australia

• The Australian share market on Monday closed flat ahead of Tuesday's federal budget and after the local currency dropped below parity with the US dollar.  The benchmark S&P/ASX200 index was up 4.2 points, or 0.08 per cent to 5,210.3 points.
• Today (14/05/13), the Australian market looks set to open slightly higher after Wall Street traded flat under the shadow of poor Chinese economic data and a slight gain in US monthly retail sales.
• In economic news on Tuesday, the Australian Bureau of Statistics (ABS) is due to release March lending finance data.
• In equities news, the three-day RIU Resources Round Up conference starts, while the Iron Ore Project Development and Logistics two-day conference starts in Perth.

Hong Kong

• Local stocks dropped. The HSI and HSCEI declined 331 points and 238 points to 22989 and 11109 respectively. Market Turnover 59.24 billion.
• As we expected, the HSI stared 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

Straits Trading Company (STC) and its concert parties have decided to accept the takeover bid of United Engineers (UE) for WBL Corporation, of which STC is currently the largest shareholder. STC will reap $507.3 million in cash from the sale of WBL, a technology, motor and property group otherwise known as Wearnes. It and its concert parties now hold a 44.58 per cent stake in WBL. UE upped its offer price for its takeover bid of WBL to a final offer price of $4.50 a share last week. (Closing price: S$3.970, +1.276%)

Biosensors International Group Limited entered into an agreement to acquire substantially all assets of Spectrum Dynamics, a leader in advanced functional assessment technologies, including those used to evaluate patients for cardiac interventions, subject to the fulfilment of certain condition. The deal consideration is approximately US$51.0million, with potential earn-out payments upon fulfilling certain performance criteria. Under the terms of the deal, the two companies will also create a joint venture aimed at developing future non-cardiac applications. (Closing price: S$1.215, -1.619%)

Nam Cheong Limited announced that it has sold five vessels worth a total of US$110.0 million. One 12,000 brake horsepower (bhp) Anchor Handling Towing Supply (AHTS) vessel was sold to a new customer based in Indonesia. Meanwhile, four Platform Supply Vessels (PSVs) were sold to an existing customer, a leading oilfield services company based in Asia. “We are also glad to be securing a new customer in Indonesia and expanding our customer base. The country is expected to lead the region on offshore oil and gas expenditure, so we are optimistic about exciting prospects developing on the Indonesian front. As a testament to our long-standing relationship with our existing customer based in Asia, we are also pleased to be supplying them with the four PSVs,” said Leong Seng Keat, Nam Cheong’s Executive Director. Since the start of the year, the group has sold a total of 13 vessels. Nam Cheong’s orderbook reaches RM1.7 billion with this latest win. (Closing price: S$0.255, -%)

Source: PhillipCapital Research - 14 May 2013