Morning Market Commentary

- STI: -0.94% to 3170.4                                  - SET: -4.97% to 1452.6
- JCI: -3.5% to 4610                                       - KLCI: -0.46% to 1779.6
- HSCEI: -1.65% to 9959.7                            - Hang Seng: -1.20% to 21354.7
- Nikkei 225: -1.45% to 13317.6                    - ASX200: -1.04% to 3345.6
- India NIFTY: -1.52% to 5788.8                   - S&P500: -1.02% to 1626.1
 
 
MARKET OUTLOOK:
 
By Ng Weiwen, Macro Analyst
 
 
Sit tight. Consistent with our earlier guidance, volatility across assets is likely to persist as markets fret about the taper. Yesterday, US equity markets tumbled and EM sovereigns sold off.
 
Nikkei, Topix, USD/JPY- (1) Was Mon's bounce a dead cat bounce?; (2) Should we fade this Mon’s bounce or trade it? It is a tough call but what would be the 'delta' that lend support to trade the bounce? More taper talk by the Fed and lower as well as stable JGB yields are likely to revive Yen shorts. An extension of the duration of BoJ's funds-supply operations will certainly help dampen the gyrations in JGB. From a chartist perspective, there are incipient signs of an end of the corrective wave (i.e. Elliot Wave 2) for the Nikkei and Topix on the daily time frame, BUT we await a positive confirmation on the weekly time frame. 
 
Downward bias for HSI and HSCEI will still persist (consistent with our guidance on Mon webinar). From a chartist perspective, both indices (i) have collapsed below their 50d and 200dma support levels and (ii) are still hugging their respective lower bollinger band, portending further downside ahead.
 
Fears over weaker-than-expected growth in China, coupled with an end of the commodity supercycle is also amongst one of the themes dictating market direction in the weeks ahead.  Now do not expect massive monetary monetary stimulus from the Chinese government as the new leadership have expressed greater tolerance for slower growth in a bid to restructure the Chinese economy.
 
Policy making for the Chinese government is going to be increasingly complex as property prices –in tier 1 cities- continue to rise and monetary easing in a bid to stimulate growth at this juncture will definitely send the wrong policy message!
 
Major downside risks confronting the Chinese economy will be a collapse of the shadow banking system as well as some SOEs which could jolt investor sentiment in Chinese markets.  But as usual, expect the Chinese government to stand ready to clean up the mess. But markets will definitely not spare the rod.
 
For the STI, notwithstanding a possible near-term relief bounce up, downward bias is likely to persist as it continues to tread along its lower bollinger band. Already, it has broken below 3260 (78.6% fibo level) and 3200 psychological support level, the next immediate key support level will be pegged at around 3150.

Macro Data:

By Ng Weiwen & Roy Chen
 
In Malaysia, industrial production registered a stronger-than-expected gain of 4.7% y-y in April on account of stronger manufacturing output. Reckon mega infrastructure projects under the ETP have continued to lend support to manufacturing sector amid weakness in external demand..
 
In UK, industrial production rose by 0.8% in the 3 months period through Apr, marking the largest increase since July 2010. Manufacturing rose 5%, the most since Sep 2012. On y-y basis, manufacturing fell by 0.5% y-y and industrial production declined 0.6% y-y. The improvement in industrial production data adds to case that the nation’s economic outlook is getting better.

Regional Market Focus

Singapore

• The benchmark STI closed lower at 3.170.38 (-0.94%). The 2.7bn shares traded were worth S$1.7bn in value.
• 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 collapsed into free-fall on Tue with intraday swings of as much as 80 points before the SET index finished the session down by as much as 5% after the BOJ kept policy steady and skipped new steps to clam markets, providing big letdown for investors. TIP markets fell the most on portfolio rebalancing by foreign investors.
• Portfolio rebalancing by foreign investors continued. Foreigners dumped a net Bt45bn of Thai shares over the last 13 sessions, accounting for nearly 60% of net foreign purchases of Bt76bn last year.
• In our view, a sharp correction of nearly 200 points or 12% in the SET index from its peak of 1650 points to near its 200-day EMA line at 1440 could set the stage for some short-term rebound.
• For investment strategy, the 1440 +/- level could present a buying opportunity to bet on a rebound but investors should limit equity holdings to 25% of the short-term portfolio. If the market continues its slide, investors may alternatively use derivatives to hedge against risk. 
• Resistance for the SET index is pegged at 1470-1500 and support at 1440-1410 today

• The Jakarta Composite Index (JCI) recorded another dip on Tuesday (11/06), as investors remained concerned about the prospect of inflationary pressure after the government cut its fuel subsidies and ahead of the Eid al-Fitr holiday that usually saw demand for goods sharply increases. The JCI plunged 167.417 points, or 3.50%, at 4,609.948. Year-to-date, the composite index posted only a 6.06% gain, after a record gain of 18.60% on May 24. All major sectors ended in negative territory on Tuesday. Basic industry sector fared worst, with 5.22%-drop, followed by construction, property and real estate sector that lost 5.18%, and mining sector declined 3.85%. The LQ45 index shed 28.639 points, or 3.64%, to close at 757.276, with 43 of its blue-chip components finished in red. The deep plunge on Tuesday was largely due to investors’ concern about the prospect of inflationary pressure, after the Indonesian government cut its fuel subsidies in the attempt to rescue the current account from worsening deficit. Higher demand for goods in July and August, as the Eid al-Fitr celebration draws near, also prompted fear of inflationary spike. Pressure for the JCI also came from the Rupiah that dropped to more than 10,000 Rupiah per US dollar. Bank Indonesia said that seasonal foreign debt repayment largely contributed to such depreciation of the Rupiah. More than 290 shares declined, 44 shares advanced, and 141 shares stayed unchanged Tuesday on the Indonesia Stock Exchange, where 5.41 billion shares worth IDR 8.05 trillion changed hands on the regular board. Foreign investors’ net sell amounted to IDR 3.98 trillion, the largest foreign net sell record.
• Indonesian stocks may further decline today, extending short-term sell-offs on concerns about inflationary pressure that will likely occur after the government’s plan to cut fuel subsidies commenced. Also on the downside, negative tones from global markets today will not offer much support for the JCI. On the upside, domestic investors may see bargain opportunities, particularly on fundamentally-strong stocks. We expect the JCI to trade lower, with support and resistance at 4,450 and 4,863 respectively.

• The Colombo Bourse ended the trading day on a negative note resulting both indices re-entering in to the red space; this was mainly due the lack of buying interest amongst the participants as well as the prevailed panic selling sentiment hindered the price appreciation capability of a lot of blue chip counters. The benchmark ASPI index closed at 6,303.79 dipping 37.49 points or 0.59%. Following the trend, the S&P SL20 too closed within the negative terrain at 3,560.47 losing 13.98 points or 0.39%. The market capitalization as at the day’s closure stood at LKR 2.42Tn, with a year to date gain of 11.68%.Further, the market PER and PBV stood at 17.11 and 2.33 respectively. The turnover for the day amounted to LKR 751.02Mn; was a drop of 9.17% against the previous trading day. Under the sectorial round-up, Bank Finance & Insurance (BFI) sector topped the list providing LKR 235.46Mn, whilst accounting to nearly 1/3rd of the day’s total turnover. Further, Diversified Holdings (DIV) sector provided LKR 225.33Mn, and stood next in line under the top subscriber list for the day. Further the two sectors BFI and DIV collectively made account to 61.36% of the aggregate turnover for the day. During the day, a total of 31.73Mn shares changed hands resulting in an increase of 19.09% against the previous trading day. In terms of share price movement, 151 companies lost while 42 companies gained within the trading day. Foreign participants were bullish during the day, resulting in a net foreign inflow of LKR 213.09Mn (Foreign buying for the day amounted to LKR 358.56Mn and selling amounted to LKR 145.47Mn); this aided the year to date net foreign inflow (16.17Bn) to surpass the LKR 16Bn mark for the 1st time during the year. As at the day’s closure, the USD stood at LKR 128.41/- selling and LKR 125.35/- buying.

• The Australian share market on Wednesday closed higher as cautious investors searched for higher yielding and defensive stocks. The benchmark S&P/ASX200 index was up 19.4 points, or 0.41 per cent, at 4,757.1 points.
• Today (12/06/13), the local market looks set to open lower following falls on international markets after the Bank of Japan stayed quiet on any new stimulus measures. The Bank of Japan on Tuesday opted against increasing its asset purchase program or changing interest rates. The SFE 200 is pointing downward 42 points or 0.88 per cent to 4,723.
• In local economic news on Wednesday, the Australian Bureau of Statistics (ABS) releases lending finance for April, while the Westpac/Melbourne Institute Survey of Consumer Sentiment is due out.
• No major equities news is expected.

• Downward bias for HSI and HSCEI will still likely persist. From a chartist perspective, both indices (i) have collapsed below their 50d and 200dma support levels and (ii) are still hugging their respective lower bollinger band, portending further downside ahead.

Morning Note

Company Highlights

GuocoLeisure Limited has launched glh., a global hotel company based in London. The launch of glh. is driven by CEO Mike DeNoma, who since joining the business 12 months ago, has developed with his management team a new strategic direction for the company using his considerable experience of transforming international businesses in several industries. glh. has carried out extensive market research into what affects decision-making for owners & guests which underpins our new approach. The company said its new business model will provide an alternative to the current business by offering more flexible terms and conditions to property owners and developers which challenge the status quo and readdress the risk/reward balance within the industry. In addition to developing a new operating model glh. will be announcing the launch of three new hotel brands over the coming 12 months, the first of which will be a luxury brand in July 2013. The glh. global owner-operator strategy focuses on the 100 major global cities with the ten year ambition to deliver the best guest centred experience in the industry. The company is underpinning this with the use of advanced customer facing technology, infrastructure and decision science. “We’re delighted to launch glh. a new hotel company that signifies our intent and ambition to unlock human potential and give property owners and developers a new deal. We want to be the first port of call for developers, owners and investors who want a new deal from a hotel management company,” said DeNoma. (Closing price: S$0.76, -3.185%)

Midas Holdings Limited announced that its joint venture company, Nanjing SR Puzhen Rail Transport Co Ltd, has secured a RMB1.26 billion contract. The latest contract is awarded by Shenzhen Metro Group Co Ltd for the supply of 33 train set, or 198 train cars, for Shenzhen Metro Line 3 project, with delivery slated from 2015 to 2016. “It is a period of exciting developments for NPRT. The metro train sector’s positive order momentum is expected to benefit industry players, and NPRT is well positioned and poised to ride on this trend. We are optimistic that the growth and development of NPRT will contribute further to the group’s performance in the years ahead,” said Patrick Chew, CEO of Midas. (Closing price: S$0.48, -2.041%)

TT J Holdings Limited announced it has secured contracts amounting to S$42.0 million for the structural steelworks and civil defence shelter doors in Singapore and Malaysia. The new contracts bring the group’s orderbook to S$164.0 million. (Closing price: S$0.305, -%)

Source: PhillipCapital Research - 12 Jun 2013