Morning Market Commentary

STI: -0.53% to 3153.5                            KLCI: -0.25% to 1775.1
JCI: +1.91% to 4697.9                           SET: -1.32% to 1433.5
HSI: -1.20% to 21354                             HSCEI: -1.65% to 9959.7
Nikkei: -0.21% to 13289                         ASX200: -0.69% to 4724.5
Nifty: -0.49% to 5760.2                          S&P500: -0.84% to 1612.5
 
MARKET OUTLOOK:

By Joshua Tan, Head of Research

Global equities are still under pressure, as bounces off key support levels have proved to be ‘dead cat’.

The STI has for 2 days now traded below the key 200dma, at the round number support of 3150, chart-wise the next key support is 3100.

JCI, SET and ASX are at their 200dmas, but judging from the Hang Seng and STI, this has proved a weak support and were easily traded through.

Nikkei is currently in a sideways consolidation but only because it has thus far suffered the steepest drop.
 
S&P500 is currently testing the 50dma for the second time.
 
Most indices are hugging the lower Bollinger band or going below it, none have so far reversed course.

The global economy has actually, on the whole picked up in May, as the Global Composite PMI shows. However this only increases the prospect of tighter monetary policy ahead, the focal point of which is of course the tapering of Fed QE, thus markets are selling off to increasingly price in this event.

On the bright side, as the Fed continually signals QE tapering (our base case is end of year or early 2014 for it to actually start) this also means that by the time it actually does, markets could have finished pricing that in, and that event would also signal that the US economy is getting stronger. At that point, markets could rally again, but we may have to a lengthy consolidation till then.

Overall, we do not view that the bull market in stocks is over yet.

(Please see our Global Macro Asset Strategy reports for our Asset Allocation strategy and 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:

By Ng Weiwen & Roy Chen
  In Eurozone, industrial production rose by 0.4% m-m in Apr, a third consecutive monthly gain, after the 0.9% m-m gain achieved in Mar. Germany’s industrial production rose by 1.2% m-m, after the 1.8% m-m gain achieved in Mar. France’s industrial production rose by 2.3% m-m, reversing the 0.6% m-m drop in Mar. The European Central Bank left its benchmark interest rate at a record low 0.5 percent last week.

In UK, jobless claims fell by 8.6K in May, exceeding the market expected 5.0K drop, after the 7.3K drop in Apr. 3m rolling unemployment stay at 7.8% in the 3 months through May. The improvement in labor market adds to case that the nation’s economy is gathering momentum.

In Japan, machinery orders fell by 14.2% m-m in Apr, after the 27.8% m-m gain in Mar. Core machinery orders excluding ships and utilities fell by 8.8% m-m, after the 14.2% m-m gain in Mar. The BOJ upgraded its assessment of exports and production, saying both are “picking up,” and also saw some initial progress toward pulling the nation out of 15 years of deflation. Annual consumer-price changes are “likely to gradually turn positive,” the bank said, a switch from saying on May 22 that the benchmark gauge was “expected to register smaller declines for the time being, and thereafter is likely to gradually turn positive.”

In India, industrial production decelerated from 3.4% y-y in March to a weaker-than-expected 2% y-y in April. While this set of data puts pressure on the central bank to cut rates to stimulate investment, reckon that the RBI will have limited room to maneuver in view of relatively elevated inflationary pressures.

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.

Thailand

• Thai stocks opened deep in the red on Wed before bargain buying later led the SET index higher but failure to break above 1460-point resistance level pulled the index down again to finish the session at 1,433.47 points as foreign sell-offs continued to weigh on market sentiment.
• Bearish sentiment remains intact amid US QE concerns and continued portfolio rebalancing by foreign investors but the Thai baht started to stabilize slightly below 31 to the US dollar in the wake of the greenback’s weakness and the strength of Japanese yen after the Bank of Japan took no new monetary easing measures.
• Failure to cross back above 1440 points further weakened technical picture. To play safe, investors should continue to limit exposure to equities and play wait and see for a clearer direction around 1400 points, a level that could possibly trigger a rebound of 40-50 points. However, a breakdown below 1400 means correction will be steeper than expected and next major support will be found at 1320.
• Resistance for the SET index is seen at 1456-1480 and support at 1420-1400 today.   

• The Jakarta Composite Index (JCI) pared earlier losses and ended higher on Wednesday (12/06), as domestic investors seek to buy stocks on low prices after recent series of declines that occurred on concerns about inflationary pressure from increased fuel prices. The JCI advanced 87.936 points, or 1.91%, at 4,697.884. The climb on Wednesday included seven of the 9 major industry groups, led by miscellaneous industry sector which advanced 6.14%, followed by basic industry sector with 4.63%-gain, and consumer goods sector with 3.91%-rise. The LQ45 index added 20.251 points or 2.67% to close at 777.527, with 26 of its blue-chip components finished in green. Bank Indonesia (BI) on Tuesday (11/06) raised the deposit facility rate, often known as the “FasBI”, by a quarter of a percentage point to 4.25%. The increase was a preemptive step to maintain stability after the Rupiah weakened. The central bank’s governor Agus Martowardojo said BI is ready to buy government debt in the secondary market if necessary. Analysts expect the central bank to maintain its reference rate at the monthly board of governors’ meeting on Thursday (14/06). 154 shares rose, 126 shares fell, and 197 shares remained unchanged Wednesday on the Indonesia Stock Exchange. Volume on the regular board reached 5.72 billion worth IDR 9.18 trillion. Foreign investors posted net sell of IDR 2.17 trillion.
• Indonesian stocks will likely decline today, amidst cautious tones that kept most major stock indexes in negative territory. On the upside, however, domestic investors may use the bargain momentum to purchase stocks at lower prices. We expect the JCI to move lower today, with the band of range between 4,447 and 4,823.

• The Bourse depicted a negative closure for the 2nd consecutive day resulting the indices to retain within the negative territory amidst the sluggish participation of the investors. The benchmark ASPI index lowered 19.03 points or 0.30% to close at 6,284.76, whilst recording the lowest value after the 15th May 2013.  The S&P SL20 price index fell to 3,551.41 losing 9.06 points or a 0.25%.  The market capitalization as at the day’s closure dropped to LKR 2.41Tn (with a year to date gain of 11.35%); further the market PER and PBV stood at 17.06 and 2.32 respectively. The daily turnover for the day was LKR 566.68Mn; this indicated a drop of 24.54% compared to the previous trading day. Under the sectorial summary, Bank Finance & Insurance (BFI) sector stood on top, providing LKR 340.28Mn (this accounted to 60% of the day’s total turnover). The Construction & Engineering (C&E) sector emerged second contributing LKR 58.65Mn. Further, the two sectors BFI and C&E collectively accounted to 70.40% of the aggregate turnover value for the day. During the day, a total of 21.14Mn shares changed hands resulting in a decrease of 33.38% against the previous trading day. Foreign participants were bearish for the first time during the month, resulting in a net foreign out flow of LKR 102.59Mn whilst breaking the streak of inflows observed during the past 23 trading days (totaled up to LKR 7.06Bn);furthermore, dragging down the year to date net foreign inflow to LKR 16.07Bn. In regard to the local FOREX market, the USD closed the day at LKR 129.18/- selling and LKR 126.12/- 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.

• European market opened low on Tuesday, dragged down HSI in the afternoon to close at 21,354 (-260) and HSCEI dropped 167 points to 9,959. Both the indexes dropped below the lowest point of this year.
• Local property sector was still weak since May because of policy risks and expectation of interest rate hike, Sino Land (83.HK), Henderson Land (12.HK), Fortune REIT (778.HK) and Link REIT (823.HK) declined 4.17%, 3.98%, 3.94% and –3.90% respectively.
• Dongfeng Group (489.HK) and GAC Group (2238.HK) lost 5.02% and 4.93% respectively after the China Association of Automobile Manufacturers announced slower May car sales growth on Monday.
• HSI dropped below 21,423, the lowest point this year. We remain bearish view on the market due to recent bad economic data. The next support will be 20,800.

Morning Note

Company Highlights

Sembcorp Industries Limited announced that its wholly-owned subsidiary, Sembcorp Utilities, has signed a capital assignment agreement with BP Holdings BV to acquire its entire stake in the legal capital of Phu My 3 BOT Power Company. The acquisition results from the exercise by Sembcorp of its right to match any offer received or made by BP for such stake as set out in the BOT Contract. Upon completion of the transaction, Sembcorp’s stake in Phu My 3 will increase from 33.33 per cent to 66.67 per cent. Phu My 3 is Sembcorp’s first power plant in Vietnam, a 746-megawatt gas-fired power plant which began commercial operation in 2004in Ba Ria-Vung Tau province, southern Vietnam. (Closing price: S$4.82, -%)

Jaya Holdings Ltd said it has reached an agreement to sell a second new anchor handling tug supply vessel, Jaya Sovereign, to Canadian buyer Atlantic Towing Ltd. The Jaya Sovereign is a sister ship of the Jaya Supreme, which has since been renamed the Atlantic Kestrel and was delivered to Atlantic Towing in November last year. The new vessel's delivery is expected by the end of 2013. Jaya Holdings CEO Venkatraman Shesheshayee expects increasing demand for higher ice class vessels like Jaya Sovereign for work in Arctic waters on the back of huge interest in Arctic Sea drilling. (Closing price: S$0.585, -0.847%)

Global Yellow Pages Limited said that it was diversifying into the food business by buying an additional 16.73 per cent stake in Yamada Green Resources Limited. Yamada is a major supplier of self-cultivated edible fungi as well as a manufacturer and distributor of processed food products in Fujian, China. Global Yellow Pages has entered into a conditional sale and purchase agreement with Sam Goi Seng Hui and Hydrex International Pte Ltd, which is a special purpose vehicle owned by Mr Goi and Koh Boon Hwee, to buy 8.48 per cent of Yamada for S$11.63 million, based on S$0.275 a share. Following the share sale, Hydrex will continue to hold a 8.43 per cent stake in Yamada. (Closing price: S$0.115, +1.770%)

Compact Metal Industries Limited announced that subsidiary AEL Enviro (Asia) Pte Ltd has accepted the letter of offer dated 31 May 2013 from Jurong Town Corporation (JTC) for a 30 year lease of an industrial land in Tuas Bay Drive. The group has proposed to convert pulverised rubber crumbs into synthetic gases and carbon black powder in the site. (Closing price: S$0.009, +28.571%)

Source: PhillipCapital Research - 13 Jun 2013