Morning Market Commentary

- STI: +0.26% to 3441.5                          - KLCI: -0.30% to 1783.0
- JCI: +0.16% to 5089.9                          - SET: +0.41% to 1630.1
- HSI: +0.50% to 23044.0                        - HSCEI:+0.46% to 11083.3
- Nikkei: +2.29% to 15096.0                   - ASX200: +0.20% to 3526.5
- Nifty: +2.52% to 6146.8                        - S&P500: +0.51% to 1658.8

MARKET OUTLOOK:
By Joshua Tan, Head of Research

Truly, this is a goldilocks situation – case in point, US industrial production was a significantly weak print, but the S&P500 rallied as markets continue to view weak data as confirmation of loose central bank policy continuing. So far globally, the trend has been to cut rates in view of weak inflation and slow growth. Even in ASEAN where we see stronger inflationary trends, central banks have opted to stand pat rather than make pre-emptive hikes. The EZ remains mired in recession but the offset this year is Japan where growth is picking up.
 
Goldilocks situation remains – weak data equals loose policy so markets rally; strong data and markets rally still. As we said at year start: 2013 is the year for stocks. Our OW are the US, SG, HK, TH, PH, ID.
 
Bucking the goldilocks scenario is China, Li Keqiang, has come out clearly that China is not going to take advantage of weak inflation and downside risks to growth to go loose on policy, as that will bring about its own risks (i.e. housing bubble). The preference this year is micro-industrial policy reform.
 
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Macro Data:

In US, the New York Empire State general business conditions index slumped from 3.05 in Apr to -1.43 in May on account of lower new orders and shipments. This is consistent with the latest PMI readings. Recall manufacturing activity continued to expand, albeit at a slower pace during Apr. Specifically, the ISM manufacturing index declined 0.6pts m-m to 50.7 while the Markit counterpart slumped 2.5pts m-m to 52.1 during Apr. Separately, PPI tumbled 0.7% in Apr on lower food and gasoline costs. Disinflation would provide scope for Fed to continue to maintain accommodative monetary policy if need.
 
In the EZ, GDP growth continued to contract 0.2% q-q in 1q13, following a 0.6% decline in the preceding quarter. Looking ahead, we reckon that notwithstanding ECB’s accommodative monetary policy, the bloc is likely to remain mired in a protracted recession, weighed down by fiscal austerity as well as record high unemployment rate of around 12% (which translate to weaker consumer sentiment as well as consumption spending).
 
In Singapore, retail sales declined 5.4% m-m sa in March, reversing from a 3.4% gain in the preceding month. Ex motor vehicles, retail sales contracted 4.5%, reversing from the 7.5% contraction in the preceding month.
 
In Malaysia, GDP growth decelerated from 6.5% y-y in 4q12 to 4.1% y-y in 1q13, with resilient domestic demand offsetting sluggish export performance. Looking ahead, we reckon that growth is likely to remain firm on the back of resilient domestic demand. While Malaysian equity markets might be due for a re-rating, fiscal consolidation (via GST as well as food and fuel subsidy cuts) -after massive cash handouts and pre-election pump priming in the months preceding 13th GE- will be the key priority for the administration post-elections.

Regional Market Focus

Singapore

• The benchmark STI closed lower at 3.441.53 (+0.26%). The 2.4bn shares traded were worth S$1.58bn in value.
• Our analyst upgraded SingTel to "Accumulate", based on attractive dividend yields, and growth potential from SingTel's Associates.
• 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 composite SET index rallied sharply in line with overseas markets before it held near 1630 points throughout the session on Wed. Many stock markets around the globe including Thailand set new highs on a growing sense of optimism about the US economy.
• Thai stocks are likely to remain in a choppy uptrend but upside would continue to be limited following the end of the quarterly earnings season and the record highs of the SET index in nearly 20 years may leave the market vulnerable to sporadic bouts of profit taking along the way.
• Foreign and institutional buying would continue to be key driver of the market. Yesterday foreign and institutional buying of Thai stocks topped Bt4.6bn and Bt1.3bn respectively but foreigners turned net short by around 900 contracts in futures   
• Four securities: HMPRO, MINT, INTUCH and TRUE will be added to the MSCI Global Standard Index. Small-cap plays will be more active after more than 20 securities will be added to and deleted from the MSCI Global Small Cap Index. All changes will be made as of the close of May 31, 2013.
• Today we peg resistance for the SET index at 1635-1638 and support at 1624-1618.

• The Jakarta Composite Index (JCI) advanced in modest pace on Wednesday (15/05), amidst positive momentums in Asia after rallies on US markets overnight. The JCI added 7.94 points, or 0.16%, at 5,089.88. The advance on Wednesday was supported by six of the 9 major industry groups, led by Basic Industry sector that gained 0.80%, Agriculture sector climbed 0.78%, and Consumer Goods sector rose 0.71%. The LQ45 index closed relatively unchanged, at 856.887, with 12 of its 45 blue-chip stocks ended in positive zone. In Indonesia, 146 shares advanced, 113 shares declined, and 215 shares stayed unchanged Wednesday on the Indonesia Stock Exchange, where 3.68 billion shares worth IDR 4.88 trillion changed hands on the regular market. Foreign investors posted net sale of IDR 473.14 billion.
• The Jakarta Composite Index (JCI) will likely move sideways today, with positive bias. US central bank stimulus bolstering sentiments and positive data from Asia that may provide positive leads to stock market in Asia today. We expect the JCI to trade sideways today, with positive bias, and support and resistance each at 5,063 and 5,117.

• The Colombo Bourse ended the trading day on a mixed note. The benchmark ASPI index closed within the green terrain having gained 14.53 points or 0.23% to close the day at 6,221.12; this was after recording negative closures during the past two trading days.  The S&P SL20 (3,498.34) price index fell below 3,500 levels after the loss of 2.16 points or a minute 0.06%.  The market capitalization as at the day’s closure stood at LKR 2.38Tn resulting in a year to date gain of 10.01%, the market PER and PBV stood at 16.82 and 2.29 respectively. The turnover for the day totaled up to record LKR 1.70Bn indicating a significant increase of 166.41% against the previous trading day. Under the sectorial round-up Bank Finance & Insurance (BFI) sector topped the list providing LKR 572.33Mn while accounting to 1/3rd of the day’s total turnover. (BFI) sector witnessed the highest investor interest noting 1,983 trades out of the total 9,267 trades being lodged during the day. Diversified Holdings (LKR 478.21Mn) emerged second under the top subscriber list for the day, under the sectorial review. Further the two sectors BFI and DIV collectively made account to 62% of the aggregate turnover value for the day. A total of 49.07Mn shares changed hands resulting in an increase of 104.79% against the previous trading day. Price gainers surpassed the price losers by 111:98. Foreign participants appeared to be bullish during the day for the 5th successive trading day resulting in a net foreign inflow of LKR 859.91Mn as a result of foreign purchases worth LKR 1.08Bn and sales worth LKR 228.88Mn; this assisted the year to date net foreign inflow (LKR 10.77Bn) to cross the LKR 10Bn mark for the 1st time. In regard to the local FOREX market, the USD closed the day at LKR 128.02/- selling and LKR 124.97/- buying.

• The Australian share market closed lower on Wednesday, with the benchmark S&P/ASX200 index down 29.3 points or 0.56 per cent to 5,191.7 points.
• Today (16/05/13), the Australian market looks set to open lower despite US stocks closed at new all-time highs. The SFE Futures 200 is pointing downwards 25 points or 0.47 per cent to 5,200.
• In economic news on Thursday, the Australian Bureau of Statistics (ABS) is due to release March international merchandise imports data. Crown Casino chairman James Packer is a speaker at the Australian Financial Review Bespoke Business Luxury conference
• In equities news, Sydney Airport has its annual general meeting scheduled. In Australia, the market on Wednesday closed lower as the big miners fell on lower commodity prices and downgrades of Chinese growth forecasts.

• Local stocks climbed. The HSI and HSCEI rose 113 points and 50 points to 23044 and 11083 respectively. Market Turnover 54.87 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

Singapore Airlines Ltd, caught between the rapid emergence of Gulf carriers and low cost Asian rivals, is attempting a big strategy overhaul to revive growth, pushing into the low-cost segment and expanding its regional network. State-backed Emirates Airline, Etihad Airways and Qatar Airways are stitching deals, while Gulf states race to become regional hubs linking the Asia-Pacific region and Europe. SIA's promotional fares on its mainstay long-haul routes have helped it boost traffic, but yields are under pressure. Premium class travel, which makes up about 40 per cent of revenue, has been hit by cutbacks in corporate budgets. "They have competitors who have strong financial backing and are also forming alliances, so it's getting to be a much tougher space," said Kristy Fong, investment manager at Aberdeen Asset Management, which holds about a 4 per cent stake in SIA. (Closing price: S$11.400, +0.09%)

PETRA Foods Limited posted a net loss of US$14.9 million (S$18.3 million) in the first quarter of this year, compared with a profit of US$16.3 million last year. Casting aside its loss-making cocoa ingredients unit, which will be divested, the group posted a net profit of US$14.1 million, 20 per cent higher than last year's US$11.7 million. The group recorded a 7.7 per cent increase in revenue to US$127.4 million. The branded consumer division achieved a higher gross margin, driven by higher sales volume and a higher proportion of premium products in the sales mix, as well as effective management of input costs, the firm said. (Closing price: S$4.300, +3.37%)

Source: PhillipCapital Research - 16 May 2013