Morning Market Commentary

- STI: -1.77% to 3393.17                                 - SET: -1.46% to 1607.5
- JCI: +0.66% to 5155.1                                  - KLCI: -0.61% to 1773.1
- HSCEI: -0.23% to 10722.3                           - Hang Seng: -0.23% to 22618.7
- Nikkei 225: +0.89% to 14612.5                   - ASX200: -0.64% to 3506.6
- India NIFTY: +0.28% to 5983.6                    - S&P500: -0.06% to 1649.6

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Spot on! In our last Thurs morning note, we cautioned that a meaningful pull back in equity indices might be on the way. That proved to be a prescient call with major global equity indices (S&P 500, DJIA, Nikkei) tumbling from their recent peaks.

Looking ahead, we reckon equities will likely pull back in the near term . Note from a weekly perspective, both the S&P 500 as well as DJIA have formed a approximate 'bearish pin bar'  where gains have been capped during a volatile week.

With the Fed possibly tapering LSAPs later this year and China’s manufacturing sector looking listless (possibly contracting in May after six consecutive months of expansion), this negative sentiment is likely to weigh on the bulls’ exuberance and reinforce the case for a retracement in equities.

Investors should pay close attention to the following risk events ahead

(i) Non-farm payrolls data (7 June) – Note while the tapering of LSAPs could kick off in the next few FOMC meetings, that is still contingent on sustained improvement in the labor market

(ii) 19 June FOMC – But our base case is that the gradual withdrawal of LSAPs –if within this year- will likely commence late 3q13 or 4q13. But then again it boils down to the performance of the economy (and more critically the labour market)

(iii) Sept FOMC - Bernanke will be able to manage market's expectations during the quarterly press conference

(iv) Unresolved fiscal uncertainties in the US. US stayed just a tad below the debt ceiling by undertaking an emergency measure, suspending investments in federal worker retirement funds.  So US has earned a reprieve till possibly early Sept though there is a significant risk that fiscal consolidation remains absent even after emergency measures are exhausted.

US markets will be closed on Monday for Memorial Day.

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

Macro Data:

In Singapore, manufacturing output rose 4.7% y-y in April, largely due to an increase in pharma output. Ex-BMS, output declined 2.7%. On the inflation front, headline inflation eased from 3.5% in March to 1.5% in April on account of lower private road transport costs and transient impact of government rebates for HDB service & conservancy charges. Looking ahead, wage-cost pass through pressures are likely to persist, resulting in headline inflation to stay elevated around 3 - 4% this year. While a stronger Singapore dollar might not be able to fully mitigate domestic drivers of inflation, we expect MAS to continue to stand pat -maintaining a modest and gradual appreciation of the S$NEER.

In US, orders for core (ex-defense, ex-aircraft) capital goods registered a better-than-expected increase of 1.2% m-m in Apr. But core capital goods shipments slumped 1.5%, undershooting expectations. On the labour front, the 4 week moving average of initial jobless claims held steady at around 340k for the week ending May 18th.

In China, manufacturing activity possibly contracted in May with the flash PMI declining 0.8-pts to 49.6 – the first contraction after six consecutive months of expansion.

Regional Market Focus

Singapore

• The benchmark STI closed lower at 3.393.17 (-1.77%). The 4.6bn shares traded were worth S$2.8bn in value.
• Our analyst is Neutral on GLP, as the strong performance in FY13, and stronger FY14E, has been priced in.
• On Offshore and Marine, our analyst highlights that recent earnings were mostly in-line, and the outlook remains robust for rig builders.
• 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

• SET index tumbled as much as 48.51 points to 1,607.46 points and nearly broke below a key support level of 1600 points last Thu on concerns that the US Federal Reserve might probably start winding down its QE program sooner than expected and as China’s PMI data came out weaker than expected. 
• The balance of risks seems biased to the downside for Thai stocks and any intraday bounce will likely remain limited in the absence of strong positive triggers to drive the market higher.
• Sentiment remained bearish for most of Asia on Mon and heavy foreign selling of Thai shares and futures to the tune of Bt3.1bn and 2,100 contracts respectively last Thu ahead of long holiday weekend could exert further pressure on the market.
• This week all eyes will remain on the Bank of Thailand’s Monetary Policy Committee meeting on May 29 and domestic political developments.
• We would advise ‘sell on rise’ strategy in current market conditions. Watch out for a possible breakdown below 1600. Cut loss if the SET index breaks below 1580.   
• Resistance for the SET index is pegged at 1617-1625 and support at 1600-1582 today.

Indonesia

• Most Indonesian stocks finished in positive territory on Friday (24/05), recouping some of the losses in the previous session, amidst mixed tones in Asia as investors looked for bargains. The Jakarta Composite Index (JCI) gained 33.690 points, or 0.66%, at 5,155.093. The climb on Friday was supported by shares in seven of the 9 major industry groups, led by Agriculture sector which index advanced 2.04%, Miscellaneous Industry sector added 2.00%, and Construction, Property and Real Estate sector rose 1.54%. The LQ45 index climbed 4.766 points or 0.55% to close at 869.639, with 25 of its 45 blue-chip components ended in green. 204 shares advanced, 73 declined, and the remaining 198 were unchanged Friday on the Indonesia Stock Exchange, where 4.65 billion shares worth IDR 5.4 trillion changed hands on the regular board. Foreign investors posted net sale of IDR 659.7 billion.
• Indonesian stocks may move lower today, as the prospects of the US Federal Reserve starting to reduce its bond-buying stimulus will likely keep investors in cautious stance. We expect the JCI to move moderately lower today, with support and resistance at 5,109 and 5,198.

Sri Lanka

• The Colombo bourse ended the half-day’s trading session on a positive sentiment assisting the indices to elevate further while closing within the green terrain. Active participation of the investors supported the bourse to cross 6,500 level during the early trading hours whilst reach an intraday high of 6,515.76, recording the highest index value after 14th October 2011 (6,549.91).  However, as at the day’s closure the benchmark ASPI stood at 6,488.85 up by 27.23 points or 0.42%.The S&P SL20 maintained its stay within the green space for the 6th consecutive trading day closing at 3,666.04 after gaining 2.06 points or tiny 0.06% within the trading day. The daily turnover totaled up to LKR 556.04Mn resulting in a drop of 27.57% compared to the previous trading day. Under the sectorial round-up, ‘Motors’ (MTR) sector topped the list providing LKR 177.49Mn while accounting nearly 32% of the aggregated turnover. Further, the Land & Property (L&P) sector too made a notable contribution of LKR 85.81Mn, standing next in line to MTR. The two sectors MTR and L&P collectively made a 47.35% contribution to the daily aggregate turnover value. A total of 20.26Mn shares changed hands resulting in a drop of 1.08% against the previous trading day. Price gainers outperformed the price losers by 97:89. Foreign participants appeared to be bullish for the 11th consecutive trading day to record a net foreign inflow of LKR 218.79Mn, as a result of foreign purchases worth LKR 257.43Mn and sales of LKR 38.63Mn; this assisted the year to date net foreign inflow (LKR 13.09Bn) to exceed LKR 13Bn for the 1st time during the year.

Australia

• The Australian share market posted major falls last week, and on Friday the benchmark S&P/ASX200 index lost 78.9 points or 1.56 per cent to 4,983.5.
• Today (27/05/13), the Australian share market is set for a small fall when it opens for the week. Wall Street provided a mixed lead on Friday night, with the main indices only marginally changed heading into a three-day weekend. The SFE 200 is pointing downwards 6 points or 0.12 per cent to 4,967.
• No major economic news is expected on Monday.
• In company news, Fairfax Media chairman Roger Corbett is scheduled to deliver a speech at a business lunch in Adelaide. Energy industry representatives have gathered in Brisbane for the annual Australian Petroleum Production & Exploration Association (APPEA) conference.

Hong Kong

• The Hang Seng Index closed today at 22618.67, down 51.01 points or 0.23%.
• Heavy losses continued throughout the week after preliminary data from HSBC indicated a contraction in Chinese manufacturing. There were also concerns on US stimulus scale-back after Federal Reserve chief Ben Bernanke said the Fed could begin reducing its $85 billion per month bond-buying programme.

Morning Note

Company Highlights

Biosensors International Group Ltd announced the completion of its acquisition of substantially all assets of Spectrum Dynamics, a leader in advanced functional assessment technologies, including those used to evaluate patients for cardiac interventions. The deal consideration is approximately US$51million, 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. Biosensors expects the transaction to have minimal impact on its 2014 fiscal year financial results, with the potential to be moderately accretive to its earnings in the following fiscal year. (Closing Price S$1.205, -2.43%)

NH Ceramics Ltd announced the extension of the exclusivity period of its proposed acquisition of Blackgold Asia Resources Pte Ltd and Blackgold Energy Ltd for a period of thirty (30) days till 23 June 2013. The Parties are finalising the Definitive Agreements and the Company will make further announcement(s) when the Definitive Agreements have been entered into, or as and when appropriate in a timely manner. (Closing Price S$0.087, 0.00%)

China Yuanbang Property Holdings Ltd announced that its subsidiary, New Zhong Yuan (Nanchang) Real Estate Co. Ltd has, on 13 May 2013, entered into a sale and purchase agreement with Zhu Hu Hu, Liao Wu Ping, Chen Xuan Rong and Yuan Wen Peng (collectively, the "Purchasers") in relation to the proposed sale of a hotel property currently under development in Nanchang City, Jiangxi Province, People's Republic of China for an aggregate consideration of RMB268,000,000. The Aggregate Consideration was arrived at on the basis of the sum of the market price of the land cost of RMB178,000,000 and the construction cost of approximately RMB90,000,000 incurred by the Company to date. (Closing Price S$0.130, -10.34%)

Oakwell Engineering Ltd announced that it has entered into a conditional and binding Letter of Intent with Sonepar Asia Pacific Limited on 23 May 2013 for the sale of the Company’s and the Group’s assets and liabilities of the distribution of electrical and mechanical products and accessories, together with the related engineering and assembly services (the “Distribution Business”), excluding any cash, financial debts and real properties save for the warehouse in Houston, Texas, United States of America (collectively known as the “Assets”), for the base consideration of S$70 million. The Base Consideration was arrived at arms' length negotiations between the Company and the Purchaser, after taking into account the net asset value as at 31 December 2012 of the Distribution Business of approximately $28.6 million. (Closing Price S$0.066, -4.35%)

Singapore Windsor Holdings Ltd issued a profit warning to inform the shareholders of the Company and the potential investors that the Group will record a loss for FY2013 compared to a profit HY2013. This was mainly attributable to the decrease in selling prices and profit margins of the manufacture and sale of moulds segment during the second half of FY2013 as compared to HY2013. The loss incurred and the impairment made for the silicon manganese project has further deepened the loss. This profit warning is based on a preliminary review of the unaudited financial results of the Group. Further details of the Group’s performance will be disclosed when its unaudited financial results for FY2013 is finalised. (Closing Price S$0, 0%)

Source: PhillipCapital Research - 27 May 2013