- SET: -1.46% to 1539.3
 - JCI: -1.92% to 4971.4                                 - KLCI: -0.16% to 1766.3
- HSCEI: -0.48% to 10548.1                          - Hang Seng: -0.49% to 22282.2
- Nikkei 225: -3.72% to 13261.8                    - ASX200: -0.87% to 3443.6
- India NIFTY: -0.78% to 5939.3                   - S&P500: +0.59% to 1640.4

MARKET OUTLOOK:

By Ng Weiwen, Macro Analyst
 
The global economy still has not emerged from the soft patch yet. Manufacturing activity in both the US (based on ISM) and China (based on HSBC-Markit) slipped into contractionary territory in May. While separate US Markit and China NBS surveys indicate otherwise, what we can conclude from the mixed reading is this - manufacturing is still stuck in low gear. But the manufacturing downturn is turning less negative for the EZ as tail risks (or rather the perception of tail risks on the EZ front) receded.
 
For this week, our advice is to sit tight and be prepared for significant market volatility in ahead. The major event risks ahead this week could possibly punish markets for their earlier complacency. Stay nimble!
 
This week’s event risks – and our expectations- as follows:
 
1) US non-farm payrolls for May (7 June)
2) Fed’s beige book (6 June)
 
Note while the tapering of LSAPs could kick off in the next few FOMC meetings (our base case is tapering is likely to start 4q13), that is still contingent on sustained improvement in the economy (specifically labor market) which key releases (1) and (2) will shed light on.
 
Better-than-expected non-farm payrolls data could see 10yr Treasury yields soaring, especially with the possibility of LSAP tapering lurking at the backdrop.
 
3) ECB monetary policy meeting (6 June)
 
We expect ECB to stand pat, maintaining the 7-day refinancing rate at 0.50%, after a 25 bps cut last month. Nonetheless, we expect a dovish bias after ECB stated at the May meeting that it was keeping an "open mind on negative deposit rates.
 
4) RBA monetary policy meeting (4 June)
We expect RBA to stand pat, maintaining the cash target rate at 2.75% after a 25bps cut in May. Nonetheless,  we do not rule out another 25bps cut in 4q13 should the Australian economy turn out to be weaker-than-expected.
 
5) Informal meeting between US President Obama and China President Xi (7-8 June) prior to the Strategic Economic Dialogue (8-12 July) is likely to lead to a possible widening of USD/CNY trading band.
 
On Mon, China and HK markets shrugged off the contraction in May’s manufacturing activity as measured by HSBC-Markit as investors were already forewarned by the sub-50 flash reading 2 weeks ago. Meanwhile, the Nikkei continued to be clobbered - consistent with what we had guided- amid a corrective Elliot wave 2.
 
For the STI, downward bias is likely to persist as it continues to hug its lower bollinger band after falling through the key 3320 support level.

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Macro Data:
By Ng Weiwen & Roy Chen

In Singapore, manufacturing activity continued to expand in May - at a quicker pace. Specifically, the headline PMI rose by 0.8pts m-m to 51.1. Similarly, the pace of expansion in the electronics cluster also quickened with the electronics PMI rising 0.2pts m-m to 51.4 in May. This set of readings is consistent with the optimism expressed by manufactures in a recent survey. Recall a net weighted balance of 12% of manufacturers expect business conditions to be more favourable over the next six months (Apr-Sept).  In the electronics cluster, a net weighted balance of 18% of manufacturing firms also shared the same positive sentiment.
 
In US, , the ISM manufacturing PMI indicated that manufacturing activity contracted in May. Specifically, the ISM PMI slipped 1.7pts m-m to 49pts in May- the first contraction since Nov 2012- on account of decline in both new orders and output. Juxtaposed against weak private consumption data, growth in Q2 is likely to be soft.
                                                                                    
In Indonesia, headline inflation moderated –albeit slightly- from 5.57% in Apr to 5.47% in May on account of lower food prices. But inflationary pressure persists ahead of a possible scale back in fuel subsidies which has been a fiscal strain on the budget. Bank Indonesia’s target range for inflation is at around 3.5-5.5%, but BI has cautioned that inflation can surge to around 7.76% if a fuel price hike does materialise.
 
In Euro Zone, final reading for the region’s HSBC manufacturing PMI reported 48.3 in May, indicating a contracting in the manufacturing industry. Germany’s HSBC manufacturing PMI reported 49.4 while France’s HSBC manufacturing PMI reported 46.4, all indicating contractions.
 
 
In UK, HSBC manufacturing PMI unexpectedly rose to 51.3 in May, higher than the market expected 50.3 and the prior 49.8 reading in Apr, indicating a better outlook for the nation’s manufacturing industry. Bank of England Governor Mervyn King said in comments broadcast yesterday there are signs the U.K. economy is recovering, though output is not expanding “as fast as we’d like it to.” Given the better outlook, the BOE’s monetary policy committee is likely to keep the current 3.75 bn pound bond repurchase program unchanged.
 
In China, HSBC PMI fell to 49.2 in May from 50.4 in Apr, indicating a contraction in the nation’s small and medium manufacturing business. A separate report shows the nation’s official non-manufacturing PMI fell slightly to 54.3 in May from 54.5 in Apr, indicating a slower expansion in the nation’s non-manufacturing sector. Today’s data add to case the nation’s recovery is losing momentum. Earlier the government has indicated tolerance for minor economic slowdown therefore we do not expect major actions taken by the central bank on the monetary front as the rising housing price erode the scope for doing so.
 
In Australia, performance of manufacturing index rose to 43.8 in May from 36.7 in Apr, indicating a slower contraction in the nation’s manufacturing sector. Inflation rose slightly to 2.2% in May from 2.1% in Apr, still near the lower end of RBA’s 2-3% target range. Retail sales rose by 0.2% m-m sa in Apr, after the 0.4% m-m fall in Mar. With the tame inflation, the central bank still has room for further loosening if necessary.
 
In South Korea, HSBC manufacturing PMI fell slightly to 51.1 in May from 52.6 in Apr, indicating a slower expansion in manufacturing industry. Inflation fell further to 1.0% in May from 1.2% in Apr, giving the central bank sufficient room for further loosening if necessary.

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Regional Market Focus

 

Singapore

• The benchmark STI closed lower at 3,291.08 (-0.61%). The 2.9bn shares traded were worth S$1.7bn in value.
• We expect STI to be bearish in the short term, as the index fell through the key 3320 support level.
• Top picks for the year are Pan United (Buy, TP: S$1.21), SIAEC (Buy, TP: S$6.10) & Boustead Singapore (Buy, TP: S$1.93). 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 extended sharp falls tracking overseas markets on Mon amid persistent concerns over possible US QE cutback. The composite SET index broke below support level of 1550 points to finish the session at 1,539.06 points.
• The consolidation will remain in place in the Thai stock market amid global economic concerns and worries of a possible US QE cutback. The Thai baht/US dollar rate weakened rapidly to near 30.3-30.4 after the Bank of Thailand’s policy rate cut last week. The weaker baht triggered more portfolio rebalancing by foreign investors.
• Sharp losses of more than 80 points over the last four sessions may set the stage for the SET index to stage some intraday bounce but we rule out a strong rebound. 
• The strategy is to sell on rise and gradually reduce equity holdings to a mere 25% of the portfolio.
• Today we peg resistance for the SET index at 1550-1562 and support at 1524-1515. 

Indonesia

• The Jakarta Composite Index (JCI) plunged on Monday (03/05), breaking below the significant level of 5,000, amidst cautious sentiments in global markets and as investors’ concerns about the government’s indecision in cutting fuel subsidies continued weighing on Indonesia’s stock market. The JCI shed 97.274 points, or 1.92%, to close at 4,971.354, below the psychological level of 5,000. The decline on Friday included all but one major sector, with infrastructure sector gained 0.93%. On the downside, construction, property and real estate sector plunged 3.87%, agriculture sector lost 2.88%, and consumer goods sector shed 2.80%. The LQ45 index fell 15.757 points, or 1.88%, at 823.711. From the economic front, Indonesia’s inflation eased in May, to 5.47% (yoy), from 5.57% (yoy) in April. The softer inflation was in line with declining prices of foods and jewellery. Concerns about inflationary pressure remained ahead of a likely government decision to reduce fuel subsidies. Trade balance in April plunged to a USD 1.61 billion deficit, after a surplus of USD 330 billion in March. Both exports and imports fell in April, with the first declined 9.11% (yoy), and the later declined 3.68% from a year ago. 246 shares fell, 52 shares climbed, and 178 shares stayed unchanged Monday on the Indonesia Stock Exchange, where 5.62 billion shares worth IDR 8.55 trillion changed hands on the regular board. Foreign investors accumulated net sale of IDR 1.68 trillion.
• Indonesian stocks looked poised for a sideways move today, amid contradicting tones in the US market overnight and in Asia this morning. Optimism that the US Federal Reserve may keep its asset purchase program unchanged this month may be offset by declining sentiments in Asia as the Yen strengthened against the US dollar. We expect the Jakarta Composite Index (JCI) to move sideways within 4,897 – 5,092 range.

Sri Lanka

• The Colombo bourse ended the day on a negative note, resulting in both indices to conclude within the red terrain. The benchmark ASPI index lost 11.38 points or 0.18% to close the day at 6,451.68 and the S&P SL20 index closed at 3,635.59, losing 10.73 points or 0.29%. As at the day’s closure, the total market capitalization stood to record LKR 2.48Tn indicating a year to date gain of 14.30% and the market PER and PBV stood at 17.51 & 2.38 respectively. The aggregate turnover for the day amounted to LKR 752.71Mn; this was a minute increase of 2.87% against the previous trading day. Under the sectorial round-up, Motors (MTR) sector topped the list providing LKR 288.42Mn while accounting to 38.32% of the total turnover. Beverage Food & Tobacco (BFT) sector too made a notable subscription of LKR 113.13Mn. Additionally, the two sectors MTR and BFT collectively accounted to 53.35% of the daily aggregate turnover. Shares totaling up to 20.94Mn were traded during the day resulting in a dip of 38.83% compared to the previous trading day. Price losers outstripped the price gainers by 113:91. Foreign participants appeared to be bullish during the day resulting in a net foreign inflow of LKR 342.28Mn (Foreign purchases amounted to LKR 403.21Mn and sales were 60.93Mn); this extended the year to date net foreign inflow to cross the LKR 14Bn mark for the 1st time during the year. In regard to the local FOREX market, the USD closed at LKR 128.04/- selling and LKR 124.99/- buying.

Australia

• The Australian share market on Monday finished lower as investors sold off mining stocks due to weaker commodity prices. The benchmark S&P/ASX200 index was down 38.3 points, or 0.78 per cent, at 4,888.3 points.
• Today (04/06/13), the local market looks set to open flat despite gains on Wall Street overnight following weaker-than-expected US manufacturing and construction spending figures.
• In economic news on Tuesday, the Reserve Bank of Australia (RBA) makes its  interest rate decision at its monthly board meeting. And, the Australian Bureau of Statistics releases balance of payments and international investment position for the March  quarter; the government finance statistics for the March quarter; and overseas arrivals and departures figures. Coles Chief executive Ian Mcleod is scheduled to speak at AMCHAM  lunch while Deloitte Access Economics partner Professor Ian Harper presents a report on the role of superannuation in the economy.
• No major equities news is expected.

Hong Kong

• The Hang Seng Index closed lower for the fourth consecutive sessions at 22,282.19 down 109.97 points or -0.49%. In-line with the region-wide market’s bearish tone, HSI closed near the low of the day.

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Morning Note

Company Highlights

Federal International (2000) Ltd entered into a conditional sale and purchase agreement (“Transaction”) with PT Petroflexx Prima Daya (“PT PPD”) on 3 June 2013 for the sale of the Company’s 40% shares in Federal JWR Energy Pte Ltd (“FJWR”) for USD3,640,588. PT PPD holds the balance 60% shares in FJWR. FJWR’s sole operating activity is the rental of gas and oil production related facilities in Indonesia. The sale and transfer of the shares in FJWR is conditional upon the Company receiving the full consideration from PT PPD. A payment of USD700,000 has been received and the balance of USD2,940,588 is payable over a period of 34 months. The Company had in 2004 originally invested SGD202,620 for its 40% shares in FJWR. The investment in FJWR is currently carried in the books of the Company at nil value. As at 31 March 2013, FJWR has a net liability of USD313,000. The Transaction will not have any impact on the Group’s results for the current financial year. (Closing Price S$0.027 -%)


Singapore Press Holdings Limited announced that with effect from 31 May 2013, its shareholding in a subsidiary, SPH UnionWorks Pte Ltd (“SPH UnionWorks”), has been increased from 80% to 92.9% or 7,459,059 shares. SPH's shares in SPH UnionWorks are held through another subsidiary, SPH MultiMedia Pte Ltd ("SPH Multimedia"). The increase is a result of the issue of 5,179,059 shares by SPH UnionWorks to SPH MultiMedia for a consideration of $3.601 million, arrived at based on the net asset per share of SPH UnionWorks and satisfied through the capitalization of SPH MultiMedia's shareholder's loan of $1 million and an equity injection of $2.601 million. (Closing Price S$4.300, 0.703%)