Morning Market Commentary

STI: -1.46% to 3243.4                            KLCI: -0.13% to 1774.4
JCI: -0.41% to 5001.2                            SET: -2.12% to 1522.7
HSI: -0.97% to 22069.2                          HSCEI: -0.61% to 10473.2
Nikkei: -3.83% to 13014.9                      ASX200: -1.34% to 4835.2
Nifty: +0.07% to 5923.8                         S&P500: -1.38% to 1608.9

MARKET OUTLOOK:
By Joshua Tan, Head of Research
 
Equity markets remain in correction mode.
 
The Nikkei in particular is suffering a serious selloff as investors were let down by the lack of structural reform detail from Mr. Abe, with Autumn being the new target date for new legislative. Of note, Public Private Partnerships will be explored to replace the nations ageing infrastructure, and no mention of labour market flexibility. As we have warned before monetary stimulus is good, and it has already had an effect on the real economy in terms of confidence returning and a weak yen for exporters, but in order for the rally to be sustained, we need structural reform in Japan’s highly protected markets.
 
Regional indices remain weak with negative price action and support levels being tested. The STI, the ASX200 are both likely to test the 200dma next. The SET is testing its 100dma.
 
Of note, we are downgrading Philippines from OW to MW as although the macro outlook for the country remains positive, the index has vastly outperformed this year and valuations are expensive. Simply, it needs to digest the run-up which it has had.
 
Overall, we advise that the declines are not yet over. Global macro team will signal when we think is a good time to re-enter equity markets, as we believe the bull run is not over yet, and that the second half of the year should see an improvement in the global economy.
 
(Please see our Global Macro Asset Strategy reports for ETF and CFD instruments to trade the macro outlook. PhillipUT Wrap Account offers tactical asset allocation of unit trusts without front loading sales charge.)

Macro Data:

In US, according to the ADP employment report -prelude to Fri NFP- private payrolls increased 136k, undershooting market expectations as  significant fiscal drag from tax hikes and government spending cuts weigh on the labour market. Separately, the ISM nonmanufacturing survey headline inched up 0.6pts m-m to 53.7 in May, in line with expectations. Lastly, new orders of core capital goods (ex air, ex defence) rose 1.2% m-m sa in April.
 
In Euro Zone, the region’s GDP stay stagnant in 1q13, reporting a 0.0% q-q growth, after the 0.1% q-q fall in 4q12. On y-y basis, GDP fell by 0.3% y-y, compared to the 0.2% y-y fall in 4q12. Household consumption stayed unchanged in 1q13, after the 0.3% q-q fall in 4q12. On y-y basis, household consumption fell by 0.7% y-y, compared to the 0.9% y-y fall in 4q12. Investment fell by 0.3% q-q in 1q13, after the 0.3% q-q drop in 4q13. On y-y basis, investment fell by 1.0% y-y, compared to the 1.0% y-y drop in 4q12. The region’s final service PMI reported 47.2 in May, after the 47.0 reading in Apr, still indicating a contraction. Retail sales fell by 1.1% y-y in Apr, after the 2.2% y-y fall in Mar. ECB president Mario Draghi said this week that while the outlook is challenging, he still anticipates a pickup in growth later this year.
 
In China, HSBC services PMI rose slightly to 51.2 in May, after the 51.1 reading in Apr, indicating a continued weak expansion. The nation’s economic recovery is rather mild compared to the market had previously expected, and the government signaled a slower growth is tolerable considering the undergoing economic and structural reforms.
 
In Australia, GDP grew by 0.6% q-q in 1q13, slower than the market expected 0.7% q-q pace, after the 0.6% q-q gain in 4q12. On y-y basis, GDP grew by 2.5% y-y, trailing the market expected 2.7% y-y pace, after the 3.1% y-y gain in 4q12. The weaker than expected GDP growth might motivate the RBA to consider further monetary loosening, given there is still scope granted by the tame inflation.

Regional Market Focus

Singapore

• The benchmark STI closed more than one per cent lower at 3,243.43 (-1.46%). The 3.4bn shares traded were worth S$1.9bn in value.
• The STI broke through the 3,240 key support level during intraday trading. Downward bias is likely to persist in the short term.
• 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.

• Thai stocks lost 32.95 points to 1522.66 points on Wed amid continued foreign sell-off and persistent worries of a possible QE cutback in the US.   
• The overall bearish sentiment in the market is likely to persist on fears of a possible QE exit in the US while a mixed bag of US economic data dragged the Dow industrials down by more than 200 points below the 15000-point mark. Traders are still awaiting (i) the outcome of the ECB meeting today with market expecting the ECB to stay pat on interest rate at 0.5% and (ii) US labor market day due out tomorrow.  
• Portfolio rebalancing by foreign investors continued amid the weakness of the baht to above 30.50 to the US dollar. Under this circumstance, we expect Thai stocks to have another session of choppy consolidation in a wide trading range of 1500-1540 points today. There is potential for a downward correction to 1440-1480 points though some short-term rebound is likely around a key psychological level of 1500.   
• Resistance for the SET index is pegged at 1540-1556 and support at 1508-1500 today.  

• The Jakarta Market is closed for public holiday today (06/06/13).

• The Colombo bourse experienced a lot of fluctuations throughout the day but, concluded on negative notes on both indices. This was resulted with the sluggish participations as well as the profit realization by those investor segments. The benchmark ASPI Index closed negative for the third consecutive day at 6,422.84 losing another 26.82 points or 0.42% and the S&P SL20 Index dipped by 10.85 points or 0.30% to close at 3,635.05. The market capitalization as at the day’s closure stood at LKR 2.47Tn resulting in a year to date gain of 13.79%; further, the market PER and PBV stood at 17.44 and 2.37 respectively. The turnover for the day was LKR 818.43Mn; indicated a drop of 21.12% against the previous trading day. Under the sectorial round-up, Manufacturing (MFG) and Bank Finance & Insurance (BFI) sectors topped the list providing LKR 368.93Mn and LKR 147.24Mn respectively. The two sectors collectively accounted 63.07% of the day’s aggregate turnover.  During the day, a total of 27.24Mn shares changed hands resulting in a gain of 16.84% against the previous trading day. Price losers surpassed the gainers by 132:76. Foreign participants were bullish during the day, recording a net foreign inflow of LKR 314.22Mn (Foreign buying amounted to LKR 432.33Mn and selling amounted to LKR 118.12Mn); this assisted the year to date net foreign inflow to record LKR 14.76Bn. In regard to the local FOREX market, the USD closed at LKR 128.05/- selling and LKR 125.00/- buying.

• The Australian share market on Wednesday closed more than one per cent lower as weak gross domestic product figures prompted investors to dump banking stocks. The local market posted its ninth daily fall in 12 trading days. The benchmark S&P/ASX200 index was down 65.6 points, or 1.34 per cent, at 4,835.2 points.
• Today (06/06/13), the local market looks set to open lower following sharp losses on Wall Street. The SFE 200 is pointing downwards 47 points or 0.97 per cent to 4,784.
• In economic news on Thursday, the Australian Bureau of Statistics (ABS) releases April's international trade in goods and services figures. Meanwhile, Virgin Australia CEO John Borghetti is due to speak at the West Australian Leadership Matters breakfast.
• In equities news, Fairfax Media has an investor day.

Hong Kong

• HSI and HSCEI dropped 216.28 points to 22,069 and 64.31 points to 10,473 respectively. It was mainly due to share prices in local property sector declined. Cheung Kong (1.HK), Swire Pacific A (19.HK) and Henderson Land (12.HK) dropped 2.757%, 2.645% and 2.24% respectively.
• Link REIT (823.HK) announced 2012 results. Total distributable income increased by 14.6% to HK$3.35 billion, reflected slower growth as compared with 19% growth in 2011. The share price declined 2.463% to HK$39.6.
• Management of AIA Group, the largest independent pan-Asian life insurance group, said setting up insurance department in mainland banks will increase competition in industry, the share price dropped 3.348% to HK$33.2.
• HSI dropped below 22,200 and next supports will be 22,000 and 21,500.

Morning Note

Company Highlights

Mapletree Industrial Trust Management Ltd., as manager of Mapletree Industrial Trust, announced that it has issued 10,887,523 new units in MIT (“Units”) at an issue price of S$1.5263 per Unit pursuant to MIT’s distribution reinvestment plan (“DRP”) in respect of MIT’s distribution for the three months ended 31 March 2013. The new Units will commence trading on the Main Board of Singapore Exchange Securities Trading Limited (“SGX-ST”) at 9.00 a.m. on 5 June 2013. The new Units will rank pari passu in all respects with the existing Units. Following the issuance of the new Units, the total number of MIT Units in issue has increased from 1,641,829,973 to 1,652,717,496 (Closing Price S$1.455 +5.054%)

Source: PhillipCapital Research - 6 Jun 2013