- SET: -2.97% to 1427.4
- JCI: +1.38% to 4840.5                                 - KLCI: +0.11% to 1774.1
- HSCEI: -0.11% to 9733.5                            - Hang Seng: -0.00% to 21225.9
- Nikkei 225: -0.20% to 13007.3                    - ASX200: +0.67% to 3367.1
- India NIFTY: -0.62% to 5813.6                   - S&P500: +0.78% to 1651.8

MARKET OUTLOOK:

By Ng Weiwen, Macro Analyst
 
Markets are waiting for the cue from Bernanke and notably US markets overnight have seemingly jumped ahead of the gun in anticipation of positive news, especially when a benign core inflation reading for May allow scope of continued monetary easing if need.
 
For the STI, it paused just a tad below the 3230 resistance level on Tues after bouncing up for the third consecutive day. Today, the STI might see an anticipatory –but limited- bounce up, with near-term resistance ahead at 3235. Near term support pegged at 3200 (resistance turned support level) and 3100.
 
In recent months, markets have been dancing to the Fed's tune (rather than economic fundamentals). We know the Fed can’t expand balance sheets indefinitely. When will the music end?
 
The major key risk event ahead will be the conclusion of FOMC meeting on 20th June (2 am SGP time) especially Bernanke’s press conference which follows afterwards.
 
Now note if the Fed reduce its emphasis on tapering in the next few months, do expect some sharp gyrations with covering of shorts on risk assets such as equities, especially since markets seem to have aggressively priced in expectations of sooner-than-expected reduction in QE.
 
What should investors watch out for: Fed’s updated assessment on the (i) economic outlook, (ii) inflation expectations (any deviation from its previous assessment on it being well anchored), (iii) commitment to hold down short-term rates even after tapering begins.
 
Our base case is for Fed to start tapering by end Dec 2013 and we are likely to see the first rate hike by end 2014.
 
The 2nd event worth close monitoring will be the release of flash June manufacturing PMI readings for US, EZ and China on Thursday as it will give us a sense of the state of global demand.
 
In Asia, the Indonesian government announced the approval of fuel hikes, with an assistance package for the poor families (we reckon that this move is to make the hike in fuel prices more politically palatable). We reiterate that we expect headline inflation to rise around 8% y-y in 2H13. However, we take comfort from Bank Indonesia’s pro-active management thus far, especially in its recent bid to anchor inflation expectations before the fuel price hike.  Recall 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.

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Macro Data:

By Ng Weiwen & Roy Chen
 
In US, core inflation -which exclude food and energy- inched up 0.17% m-m sa in May, following a mere 0.05% gain in the preceding month. This should ease deflationary concerns, though inflation is expected to remain benign on account of sluggish commodity prices.

In China, home price eased for the second consecutive month on a m-m basis in May, registering 0.9% m-m gain, compared to 1.0% increase in preceding month. But y-y basis, home prices rose 6% -the fastest pace ytd. This illustrates the kind of policy dilemma faced by the Chinese government which we wrote about in our morning commentary yesterday.

 

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Regional Market Focus

Singapore

• The benchmark STI closed higher at 3.229.55 (+1.45%). The 1.7bn shares traded were worth S$1.3bn in value.
• The weaker trading volumes suggest that traders are waiting for clearer signals from the upcoming FOMC meeting. Higher concentrations of trades have been on the larger caps, based on average traded value per share.
• We think investors can continue picking up stocks with strong fundamentals, although high dividend yielding plays may have to wait till visibility improves.
• Top picks for the year are Pan United (Buy, TP: S$1.21), SGX (Accumulate, TP: S$8.00) & Keppel Cord (Accumulate, TP: S$12.34). Pan United, a dominant supplier to the construction industry in Singapore, is expected to ride on the construction boom. We also note a near term catalyst from potential increase in PUC’s stake in the profitable Changshu Xinghua Port. SGX should post higher revenue from higher Securities and Derivatives trading volumes. Keppel Corp’s YTD order wins are high, while margins are expected to be attractive due to its better track record compared to global peers.

Thailand

• Thai stocks opened higher on Tue to test 1490-point barrier but failed to break through before the market reversed course to fall sharply in the afternoon trade on foreign sell-off. The SET index ended the session down as much as 43.62 points at 1427.42 points on Tue.
• Overall market sentiment turns bearish after a steep fall in the SET index ahead of the US Federal Reserve’s policy meeting and domestic political concerns with a breakdown below a key support level of 1440 amid renewed foreign selling. Traders are still awaiting the US Federal Reserve’s policy outcome. In our view, the US central bank may not be in a hurry to scale back on its QE program but it may likely provide clues on the timing of stimulus rollback while the global economy remains in a slowdown mode in the face of economic woes in Europe, China and Japan.  
• Failure to cross back above 1440 could open up the way for further downside to retest the previous low of 1350 or lower. For short-term strategy, we advise investors to cut equity holdings back to 25% of the portfolio especially if the SET index breaks below a key psychological level of 1400.
• Today we peg resistance for the SET index at 1440-1468 and support at 1400-1380.  

Indonesia

• Most Indonesian stocks ended in positive territory on Tuesday (18/06), with investors bought into agriculture companies as Crude Palm Oil (CPO) shipments from Indonesia is expected to rise ahead of the Muslim fasting month of Ramadan. The Jakarta Composite Index (JCI) climbed 65.948 points, or 1.38%, to close at 4,840.452. Agriculture sector led gains that included all 9 major industry sectors with 2.47%-surge, trailed by infrastructure sector with 2.46%-gain, and finance sector with 1.84%-rise. The LQ45 index rose 11.171 points, or 1.41%, to 803.877. Positive momentum also surfaced ahead of the US Federal Reserve's FOMC meeting on Tuesday and Wednesday, lifting sentiments in Indonesia and parts of Asia. In economic news, Indonesia's cooking oil exports rose is estimated to rise 5.4% to 1.57 million metric tons in May, according to some plantation firms and analysts. For every stock declining, more than two advanced Tuesday on the Indonesia Stock Exchange, where 4.66 billion shares worth IDR 6.42 trillion traded on the regular board. Foreign investors posted net selling of IDR 224.62 billion.
• The Jakarta Composite Index (JCI) will likely advance today, as investors are pricing-in ahead of the US FOMC meeting. Positive starts in Asia also provided support for Indonesian stocks. We expect the JCI to climb, with support and resistance at 4,765 and 4,900.

Sri Lanka

• The Colombo Bourse concluded the day on a negative note, resulted by the sluggish participation of investors and also the selling pressure which prevailed on most parts of the trading day. The Benchmark ASPI index closed within the negative terrain for the 2nd consecutive day at 6,193.00, after a loss of 26.11 points or 0.42%. However, the S&P SL20 index ended positive at 3,497.12, having gained minute 0.33 points. As at the daily closure the total market capitalization dropped to LKR 2.38Tn, whilst reducing the year to date gain to 9.73%. The market PER and PBV stood at 16.81 & 2.29 respectively. The daily turnover totaled up to 291.79Mn; this, indicated a drop of 5.91% compared to the previous trading day. Bank Finance & Insurance (BFI) sector and Beverage Food & Tobacco (BFT) sector topped the list under the sectorial review providing LKR 82.74Mn & LKR 70.53Mn respectively. A total of 23.78Mn shares were traded, resulting in a momentous gain of 172.52% against the previous trading day. Furthermore, in terms of share price movement 154 companies gained while 48 companies lost. Foreign participants appeared to be bullish during the day for the second consecutive day resulting in a net foreign inflow of LKR 32.69Mn (foreign purchases for the day were LKR 92.09Mn and sales were LKR 59.40Mn); this aided the year to date net foreign inflow to reach LKR 16.16Bn. In regard to the local FOREX market, the USD closed the day at LKR 130.23/- selling and LKR 127.06/- buying.

Australia

• In Australia, the market on Tuesday fell as investors nervously waited for an update on economic stimulus measures in the United States. The benchmark S&P/ASX200 index was down 11.5 points, or 0.24 per cent to 4,814.4 points.
• Today (19/06/13), the Australian market looks set to open higher after Wall Street rose decisively as investors bet that the Federal Reserve will stay the course on its economic stimulus policy. The SFE 200 is pointing upwards 35 point or 0.72 per cent to 4,855.
• In economic news on Wednesday, the Australian Bureau of Statistics releases May's international merchandise imports figures, while the Westpac-Melbourne Institute Leading Indexes of Economic Activity is also due out.
• In equities news, New Newscorp shares begin trading on ASX and Wall Street.

Hong Kong

• HSI opened low at 21,103 (-122) yesterday but closed at 21,225 (-0). CEI dropped 10.94 points to 9,733. Volume was still low at HKD59 billion.
• Market expects high growth in June for casino revenue in Macau. Sands China Ltd (1928.HK) and Galaxy Entertainment (27.HK), 2 gambling stocks in HSI constituent stocks, gained 4.37% to HKD40.65 and 6.02% to HKD44 respectively. Galaxy Entertainment (27.HK) achieved record high.
• As expected, China coal sector was in a downtrend due to the weak fundamentals. Yanzhou Coal (1171.HK) slumped 2.52% to HKD6.58.
• Technically, 10-MA passed below 250-MA gives a negative signal. HSI is expected to gain support at 20,800. Resistance will be at 21,500.

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Morning Note

Company Highlights

ISDN Holdings Limited has proposed to acquire equity stakes in two Indonesian energy-related companies; 40.8% and 80.0% ownership in PT Prisma Karun Energy and PT Potensia Tomini Energi respectively, allowing the Group a valuable foothold in the country’s fast expanding energy sector. PT Prisma Karun Energy has to date inked a power purchase agreement (PPA) with Indonesia’s staterun power distribution company, PLN (Perusahaan Listrik Negara) to develop a mini hydropower plant in South Sulawesi while PT Potensia Tomini Energi is in the process of signing a similar agreement in Central Sulawesi. The combined installed capacity of the three power plants is expected to be 18 megawatt (MW). Construction is expected to commence early next year and is expected to last 18-24 months. The first income stream is expected to flow in after full operations commences. (Closing price: S$1.35, 0.0%)

Enviro-Hub Holdings Ltd announced a proposed placement of 41,000,000 Shares at the placement price of S$0.11 per share, which is at a discount of 6.62% to the volume weighted average trading price of the shares on the SGX-ST on 17 June 2013. The Placement Shares represent approximately 4.2 % of the Company’s issued and paid-up share capital as at the date of this Announcement and approximately 4.0% of the enlarged issued share capital of the Company after the allotment and issuance of the New Shares. The net proceeds from the Placement to the Company after deducting for placement expense payable is approximately S$ 4.51 million. (Closing price: S$0.122, +3.4%)

Keppel Land China Limited, a wholly-owned subsidiary of Keppel Land Limited, has acquired a prime 17.5-ha residential site in Shanghai’s Sheshan area for RMB1,330 million (approximately S$266 million) for the development of approximately 200 landed homes ranging from 250 to 350 sm. The site is about 20 km from the Shanghai Hongqiao International Airport and 32 km from the city centre. It also enjoys convenient access to the A9 expressway and is just three km from Metro Line 9 Sheshan Station. The site is located about 11 km southwest of Villa Riviera, Keppel Land China’s first villa project in Shanghai. (Closing price: S$3.57, +2.3%)

CapitaLand Limited’s wholly-owned business unit, CapitaLand China, has acquired a 70% stake in Shanghai Guang Chuan Property Co. Ltd., for RMB1.95 billion (approximately S$397.5 million). A wholly-owned subsidiary of Shanghai Shentong Metro Assets Management, Shanghai Guang Chuan Property Co. Ltd. owns a prime 25,427-square-metre (sqm) site in Hanzhonglu, Zhabei District, Shanghai which will be developed into a mixed development comprising residential, office and retail components. The project will commence in 2015 and is expected to be completed by 2017. It is centrally located within the Inner Ring of Shanghai, a 15-minute drive from Shanghai’s Central Business District. (Closing price: S$3.27, +0.3%)

Soilbuild Construction Group Ltd announced that Soil-Build (Pte.) Ltd., a wholly-owned subsidiary of the Company, has accepted the
contract awarded by Rigel Technology (S) Pte Ltd for the design and building of their new headquarters at Changi Business Park, which will be used primarily to house their research and development activities. The Project involves a proposed new erection of a 6-storey building with roof amenities and semi-basement carpark on Changi Business Park (Plot 18). The total contract sum is approximately S$20.0 million.
The contract period is for 14 months from the date of permit to commence work and the contract is subject to Jurong Town Corporation’s approvals of the land sale to the Developer and the design for the Project. (Closing price: S$0.325, +1.6%)

Singapore Technologies Engineering Ltd announced that the commercial pilot training business of its aerospace arm, ST Aerospace Academy (STAA), has been awarded a five-year Multi-crew Pilot Licence (MPL) training contract by Qatar Airways. As a one stop pilot training solutions provider, STAA will undertake the global recruitment and assessment of cadets on behalf of Qatar Airways, as well as customisation of training content for Qatar Airways’ operations. The first batch of 36 cadet pilots is expected to commence training in the third quarter of 2013 and graduate in the first quarter of 2015. The subsequent intakes are expected to be similar or higher, depending on Qatar Airways’ operational requirements. (Closing price: S$3.99, +2.8%)