Morning Market Commentary

- STI: +0.31% to 3452.3                          - KLCI: -0.91% to 1766.7
- JCI: -0.22% to 5078.7                           - SET: -0.75% to 1617.9
- HSI: +0.17% to 23082                           - HSCEI: -0.58% to 11019.5
- Nikkei: +0.39% to 15037                       - ASX200: -0.50% to 5165.7
- Nifty: +0.38% to 6169.9                         - S&P500: -0.50% to 1650.5

MARKET OUTLOOK:
By Joshua Tan, Head of Research

US manufacturing contracted in the New York and Philadelphia region, as these two surveys give some heads up to the more widely watched manufacturing PMI that comes out in 2 weeks, some heads here that a build-up of soft data give an excuse for profit taking in equities (is this possible in goldilocks?).
 
Nevertheless, looking into the second half of the year, we are positive that any correction would be a buy back in opportunity: US new orders for capital goods is clearly rebounding (more forward looking than industrial production), JP’s growth outlook is improving (but more micro reforms please), China although slowing we believe will surprise in the second half – the current hands off approach for big stimulus measures is bringing greater focus for on-going micro reforms which will improve the competitiveness of the domestic economy.
 
As we said at year start: 2013 is the year for stocks. Our OWs are the US, SG, HK, CN, TH, PH, ID.
 
Our UW for gold in Oct12 has proved a prescient call: stronger USD on improved US trade balance (shale) and economy, reduced macro risk from the EZ, greater risk appetite was always going to be bad for gold. Maintain UW.
 
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Macro Data:

In the US, the labour market remains sluggish with initial jobless claims surged 32k wk-on-wk to 360k for the week ending Apr 11th.  The 4-week moving average of claims inched up 1k, following the 5k contraction in the preceding week. Recall 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). Separately, CPI inflation continued to tumble 0.4% m-m in Apr owing to lower gasoline costs. Disinflation would provide scope for Fed to continue to maintain accommodative monetary policy if need.
 
In the EZ, CPI inflation continued to decline for the fourth consecutive quarter on the back of tepid demand. Specifically, inflation eased from 1.7% y-y in March to 1.2% in Apr (a 3yr low).
 
In Japan, GDP registered a faster-than-expected growth of 3.5% annualised in 1q13, driven by robust private consumption (which makes up around 3/5 of the economy)  as well as a pick up in exports.  Private consumption is likely driven by improvement in consumer sentiment as well as wealth effect while exports have become more competitive on the back of a weaker Yen. But hold off the champagne yet. Capital spending declined 0.7 % q-q (when markets are penciling in a rise). This suggests Japanese firms still remain wary about boosting capex investment.

Regional Market Focus

Singapore

• The benchmark STI closed higher at 3.452.28 (+0.31%). The 2.6bn shares traded were worth S$1.6bn in value.
• Asian Pay TV Trust is poised to raise S$1.39 B, leveraging on positive sentiments and strong equity interest. Based on a Bloomberg article, Singapore's IPO volumes year to date has already exceeded the S$4.5 B raised from IPOs for the whole of last year, per data from Dealogic.   
• 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.

• Thai stocks opened higher on Thursday but gradually gave up earlier gains, tracking losses in Europe in the absence of fresh trading cues and amid renewed political concerns before the composite SET index finished the session down 12.2 points.
• Thai stocks look more fragile after the end of the quarterly earnings season. In the absence of fresh positive triggers for a rebound, the same old concerns would rear their ugly head especially economic worries in Europe, domestic political jitters and uncertainty over the timing of when the US Federal Reserve would scale down QE, which would leave the market vulnerable to sporadic bouts of profit taking.
• In the near term, the SET index could be headed for a pullback to close gap around 1600. For this reason, we would advise ‘sell on rise’ strategy in the current market conditions and investors should pare back equity holdings to 50% of the short-term portfolio and cut loss if the SET index breaks below 1580.
• Resistance for the SET index is seen at 1624-1634 and support at 1610-1601 today.

• The Jakarta Composite Index (JCI) slipped on Thursday (16/05). The JCI declined by 11.202 points, or 0.22%, to 5,078.678. The decline on Thursday was supported by seven of the nine major industry groups, led by Mining Industry sector that fell 2.05%, Basic Industries sector down by 0.66% and Finance sector which declined by 0.45%. The LQ45 index closed relatively unchanged, at 856.072 or down 0.10%. 124 shares advanced, and 149 shares declined Thursday on the Indonesia Stock Exchange, where 4.46 billion shares worth IDR 5.66 trillion changed hands on the regular market. Foreign investors posted net sale of IDR 14.53 billion.
• The Jakarta Composite Index (JCI) will likely to move bearish today. The US Federal Reserve’s hint to begin tamping back on monetary easing and negative tone in Asia this morning will likely spur investors’ cautions. We expect the JCI to turn lower with support and resistance each at 5,052 and 5,126.

• The Colombo bourse ended the day on a confident notion, as a result of both indices concluded positive.  This was mainly due to the lively participation of the investors, which resulted in the buying pressure which prevailed. The benchmark ASPI Index closed positive for the 2nd consecutive trading day at 6,287.00 having gained a sizable 65.88 points or 1.06%. The S&P SL20 Index too closed positive at 3,531.37 accumulating 33.03 points or 0.94%; this followed the negative closures seen during the past three trading days. The recorded turnover for the day amounted to LKR 1.88Bn accounting a gain of 10.93% against the previous trading day. Diversified Holdings (DIV) topped the list under the sectorial summary providing LKR 1.13Bn. However, investor attractions were vastly on Bank Finance & Insurance (BFI) sector with 3,074 trades out of the total 10,235 trades been noted. BFI sector provided LKR 372.94Mn to the daily turnover. Furthermore, the two sectors DIV & BFI collectively accounted for 80% of the aggregate turnover value. During the day, a total of 58.61Mn shares changed hands resulting in an increase of 19.45% against the previous trading day. Price gainers outstripped the price losers by 147:65. Foreign participants appeared to be bullish during the day for the 6th consecutive trading day resulting in a net foreign inflow of LKR 85.08Mn as a result of foreign purchases worth LKR 1.28Bn and sales worth LKR 1.19Bn, while extending the year to date net foreign inflow to record LKR 10.85Bn. In regard to the local FOREX market, the USD closed at LKR 127.65/- selling and LKR 124.60/- buying.

• The Australian share market moved lower on Thursday, with the benchmark S&P/ASX200 index losing 26 points or 0.50 per cent to 5,165.7 points.
• Today (17/05/13), the Australian market looks set to open flat after US stocks paused from their recent rally, selling off after a disappointing earnings report from Walmart and some middling economic data.
• In economic news on Friday, the Reserve Bank of Australia (RBA) has a Payments System board meeting scheduled. Gina Rinehart is due to address the mining industry employer group AMMA's national conference in Melbourne, as is federal shadow treasurer Joe Hockey.
• In equities news, PanAust has its annual general meeting scheduled.  In Sydney, the two-day Global Access Partners/Australian Centre for Health Research: Productive Ageing Conference starts. In Australia, the market on Thursday finished lower as weaker commodity prices weighed on the nation's biggest mining stocks. 

• Local stocks climbed. The HSI rose 38.4 points to 23082 while the HSCEI dropped 63.8 points to 11019. Market Turnover HK$60.8 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

Keppel Corp Limited’s Keppel FELS announced it has delivered a second KFELS B Class jackup rig to offshore Mexican oil field services company, Integradora de Servicios Petroleros Oro Negro. The rig, named Laurus, was delivered eleven days early and with a perfect safety record, the company said. Laurus is the second of two high-specification jackup rigs that Keppel FELS has built for Oro Negro which will be chartered to PEMEX, Mexico’s national oil company, for deployment in offshore Mexico. The first rig, Primus, was delivered in December last year. “We have built a win-win partnership with Oro Negro and are pleased to deliver another rig to them ahead of time, safely and within budget. This delivery is the eighth by Keppel FELS this year, and in a year where we aim to deliver a record 20 rigs, highlights our abilities and commitment to meet the needs of our customers,” said Wong Kok Seng, Managing Director (Offshore) of Keppel Offshore & Marine and Managing Director of Keppel FELS. (Closing price: S$10.85, -0.459%)

Olam International Limited announced that it is to receive the Rainforest Alliance ‘Sustainable Standard-Setter’ Award for its pioneering work with small-scale cocoa and coffee farmers across the world. The annual award programme acknowledges businesses that demonstrate outstanding leadership in helping to safeguard the environment and support local communities. (Closing price: S$1.81, -%)

Eu Yan Sang International said it will form a 50-50 joint venture (JV) with Chengdu-based Sichuan Neautus Traditional Chinese Medicine Co Ltd, one of the largest exporters of high quality TCM herbs from China. The JV is is expected to improve the group's margins through lower costs of raw materials and stronger upward integration of its supply chain, it said. The venture was entered into through its unit, Eu Yan Sang (Hong Kong) Limited. The JV, called EYS NEAUTUS (Sichuan) Company Limited, plans to set up a TCM processed herbs plant in China, with an online traceability feature to trace herbs from sources. This plant will cost RMB40 million (S$8 million) to build, it said. (Closing price: S$0.745, +9.559%)

Trading company Intraco has tied up with crane company Tat Hong Holdings and a Myanmar businessman in a joint venture in Singapore that will provide rental of cranes and the distribution of cranes and excavators in Myanmar. Intraco entered into a non-binding heads of agreement with Tat Hong and Mr Aung Moe Kyaw on Thursday to establish the company. The venture will have an initial paid-up capital of US$3 million. Intraco and Tat Hong will each own a 40-per cent stake, with Mr Aung holding the remaining 20 per cent. The JV will hold the licence with various principals to carry out the distribution of cranes and excavators in Myanmar, and will also incoporate a wholly-owned subsidiary in the country to provide crane rental services. (Closing price: S$0.525, -%)

King Wan Corporation Limited announced that its wholly-owned subsidiary, King Wan Construction Pte Ltd, has secured six new mechanical and electrical (M&E) contracts in Singapore worth a total of S$28.4 million during the period from February to May 2013. The projects will commence in 2013 and are scheduled to be completed by 2016. “We are very glad to secure these new contracts in the midst of a very competitive business environment. With these six contracts, we are delighted that to date, the group’s orderbook stands at S$183.6 million worth of M&E engineering contracts that will last to 2016,” said Chua Eng Eng, managing director of King Wan. (Closing price: S$0.28, +1.818%)

C&G Environmental Protection Holdings Limited announced that its subsidiary, C&G (Xiamen) Environmental Electricity Operation and Management Company Limited, has signed its first Operation and Maintenance (O&M) contract agreement with an independent and unrelated Waste-To-Energy (WTE) company. Service period of the O&M contract is one year, with effective date from 20 May 2013. (Closing price S$0.109, -0.909%)