KLCI: -1.82% to 1742.9
JCI: -1.92% to 4607.7                            SET: -2.11% to 1403.3
HSI: -2.19% to 20887                             HSCEI: -2.73% to 9688.3
Nikkei: -6.35% to 12445.4                      ASX200: -0.61% to 4695.8
Nifty: -1.06% to 5699.1                          S&P500: +1.48% to 1636.4
 
MARKET OUTLOOK:
By Joshua Tan, Head of Research
 
Huge rally in the US as retail sales and jobless claims data beat expectations. Last night’s market reaction reflects our overall view – economic data on the whole is signifying a pickup, which should be good for stocks, so QE tapering should just mean intermittent weakness in a continued bull run.
 
Odds on, we could see a buying back in today.
 
STI bounced off the 3100 key support. SET, JCI are oversold.
 
As for the Hang Seng and China, we think that concerns over economic data may soon turn to optimism – outside of the headline data like investment, industrial production, exports, retail sales – which we know suffers from reporting difficulties, other more reliable indicators like industrial profit, electricity production and other production are actually crawling up on a %y-y 3 month moving average basis.
 
The global economy has actually, on the whole picked up in May, as the Global Composite PMI shows. As this increases the prospect of tighter monetary policy ahead, the focal point of which is of course the tapering of Fed QE, we may see any rebound capped, but eventually tighter policy signifies more solid growth, thus the rally could continue.
 
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 US, jobless claims fell by 12k to 334k, more than expected 346. The four-week moving average declined 7k to 345k for the week ending June 8. Separately, headline retail sales advanced 0.6%m-m, beating estimates by 0.2ppt. Core retail sales increased 0.3% m-m in May, following an upward revised Apr fig.
 
In Indonesia, the central bank Bank Indonesia hiked its key rate by 25bps to 6% after raising the FASBI deposit rate (off-cycle) by 25bps to 4.25%. As we have guided previously, a hike in overnight deposit facility rate (FASBI)-  is long overdue in view of an impending spike in domestic inflationary pressures as fuel subsidies –which has been a fiscal strain but politically sensitive- would eventually need to be scaled back. We do not rule out the possibility of another 50bps of FASBI rate hike to 4.75% by year end.
 
In Philippines, the BSP stood pat in June, maintaining the key policy rate and SDA rate as the economy remains in a sweet spot. Looking ahead, the BSP is likely to adopt an interest rate corridor framework with the lower bound being the SDA rate (2%) which is below the reverse repo rate (3.5%).
 
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.
 
In Australia, people employed rose by 1,100 in May, while the market was predicting a 10,000 drop after a revised 45,000 gain in Apr. Unemployment rate fell to 5.5% in May from earlier 5.6% in Apr.  Reserve Bank of Australia Governor Glenn Stevens cut rates by 2 percentage points in the past 20 months, including a quarter-point reduction in May to a record-low 2.75 percent, as he seeks to revive industries outside mining, where investment is predicted to peak this year.
 

---

Regional Market Focus

Singapore

• The benchmark STI closed lower at 3,130.69 (-0.72%). The 2.8bn shares traded were worth S$2.0bn in value.
• The STI is expected to rebound positively today, on the back of US indices rallying on above expectation retail sales and jobless claims data.  
• 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

• The market rout continued on Thu as the SET index opened sharply lower by as much as 80 points to nearly 1350 points before afternoon bargain buying helped pare some earlier losses. The SET index finished the session down 30 points at 1,403.07 points.
• Sentiment improved in Asia on Fri after stronger-than-expected US retail sales and weekly jobless claim data sent the Dow industrials higher by as much as 180 points.
• Today there is potential for further rebound in Thai stocks from yesterday’s afternoon session after foreign investors turned net buyers of local equities worth Bt1.4bn for the first time in nine trading days but maintained net short positions of around 118 contracts in futures.
• The very fragile market will likely continue and extreme volatility may reign supreme until greater clarity emerges about the timing of the US Federal Reserve’s QE tapering. Overall we think any gains would continue to be limited to 1420-1440.
• Resistance for the SET index is seen at 1422-1440 and support at 1390-1360 today. 

Indonesia

• The Jakarta Composite Index (JCI) posted another dip on Thursday (13/06), amidst broad losses in Asia, and after the central bank, Bank Indonesia, unexpectedly raised its benchmark rate. The JCI shed 90.221 points, or 1.92%, at 4,607.663. The drop on Thursday included all major industry groups in the JCI, with miscellaneous industry sector hit the hardest after the central bank raised its benchmark rate to 6.00% for the first time since 2011. Index of miscellaneous industry sector fell 2.97%, consumer goods dropped 2.96%, and construction, property and real estate sector lost 2.68%. Bank Indonesia (BI) said the decision on Thursday was to anticipate inflation expectations, particularly after the government’s plan to cut fuel subsidies and ahead of the Eid al-Fitr celebration that usually saw prices rises. The central bank had just raised its overnight deposit rate, or usually known as the “FasBI” rate, to 4.25%. The interest rate hike on Thursday (13/06) surprised most economists, who expected BI to keep its reference rate this month. In Indonesia, 220 shares tumbled, 77 shares finished in green, and 180 shares stayed unchanged on Thursday. Volume on the regular market topped 4.6 billion shares worth IDR 7.46 trillion.
• The Jakarta Composite Index (JCI) looked set for a moderate rebound today, with upbeat sentiments in global markets providing supports for Indonesian stocks. Global market’s optimism that the US Federal Reserve would not taper its stimulus program in June’s meeting may help the JCI recoup some of the losses incurred on Thursday. On the downside, pressure may come from concerns about slowing credit-based consumption after Bank Indonesia, the central bank, unexpectedly raised its benchmark rate on Wednesday’s meeting.

Sri Lanka

• The Bourse dived further in negative space following the adverse trading pattern on previous day, both indices concluded the day with mega losses over 1%.ASPI index closed within the negative terrain for the 3rd successive day, at 6,207.87 after a loss of 76.89 points or 1.22% whilst recording the highest percentage drop after 21st November 2012 (-1.35%). The S&P SL20 index too retained within the negative space, dropping below the 3,500 level, losing nearly 1.5%. The turnover recorded during the day (LKR 480.02Mn) was the lowest recorded in 2 months, indeed, a drop of 15.29% against the previous trading day. Under the sectorial round-up, noteworthy contributions were provided by the Bank Finance & Insurance (BFI) sector [LKR 218.87Mn] and the Diversified Holdings (DIV) sector [LKR 88.14Mn]. The two sectors BFI and DIV collectively made account to 64% of the daily aggregate turnover. Shares totaling up to 25.02Mn were traded during the day resulting in a gain of 18.38%.In terms of share price movement ,Price losers outstripped the price gainers by 146:46. . Foreign participants appeared to be bullish during the day resulting in a net foreign inflow of LKR 42.83Mn (Foreign purchases amounted to LKR 67.69Mn and sales were 24.85Mn); this was having recorded an out flow during the previous trading day. As at the day’s closure, USD closed at LKR 129.06/- selling and LKR 126/- buying.

Hong Kong

• Led by bearish U.S. and Japan market, HSI opened low yesterday and dropped to day low of 20,653 (-702) in the morning after the 1-day holiday but closed at 20,887 (-468). HSCEI  lost 271 points to close at 9,688.
• Local property sector fell a lot yesterday morning but rebounded in afternoon, narrowing the HSI’s decline. New World Dev (17.HK) and Hang Lung Properties both dropped more than 5% in the early time but closed at HKD10.9, down 0.37% and HKD25.65, up 1.39% respectively. 
• Coal sector continued its downward trend yesterday. Yanzhou Coal (1171.HK), China Coal (1898.HK) and China Shenhua (1088.HK) dropped 4.6%, 4.6% and 3% respectively. We suggest investors to escape from this sector due to the poor fundamentals.
• Technically, HSI gained support at 21,800. 14-RSI was close to 20, we expect a technical rebound in short term.

---

Morning Note

Company Highlights

United Envirotech Ltd (UEL) said that it has set up a US$300 million Medium Term Note Programme. Standard Chartered Bank has been appointed to act as arranger and dealer. It said the net proceeds would be used for "refinancing of existing borrowings, making investments and/or acquisitions, general working capital and corporate purposes.'' Given the capital intensive nature of the water treatment business, United Envirotech has raised funds over the past year or so. (Closing price: S$0.905, -1.093%)

Swee Hong Limited announced that it has secured a contract from the Land Transport Authority (LTA) worth approximately S$14.0 million. The contract is for the proposed sewer diversion at Springleaf station. The project is expected to be completed on 31 October 2014. (Closing price: S$0.275, -%)

Tiong Seng Holdings said Malaysian authorities has given its unit, Robin Village Development, the nod to start building a precast plant in the Iskandar region of Johor Bahru (JB) early. The 5.57-hectare plant, with a maximum annual production capacity of precast components of 66,000 cubic metres, will raise Tiong Seng's production capacity by 60 per cent to 160,000 cubic metres by 2015, it added. Production will commence in two phases, with Phase 1 starting in the third quarter this year, and full production capacity for both phases likely to be reached by the first quarter of 2015. The construction group and property developer will will invest about S$15.6 million in the plant, using internal resources and bank borrowings, it said. (Closing price: S$0.265, -1.852%)

CFM Holdings Limited announced that it expects its overall revenues to be lower for the full year ended June 2013 (FY2013) as compared to the full year ended 30 June 2012 (FY2012). It added that it will report a net loss for FY2013. (Closing price: S$0.09, -%)

Source: PhillipCapital Research - 14 Jun 2013