Morning Market Commentary

- STI: +0.47% to 3104.4                    - SET: +2.87% to 1424.4
- JCI: +3.82% to 4587.7                     - KLCI: +0.70% to 1740.8
- HSCEI: +3.31% to 9164.64            - Hang Seng: +2.43% to 20338.6
- Nikkei 225: -1.04% to 12834          - ASX200: +1.03% to 3260.3
- India NIFTY: -0.36% to 5588.7        - S&P500: +0.96% to 1603.3  

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst

Should we trade or fade the bounce? Markets are bouncing up –but not exactly convincingly.

The STI managed to poke its head thru’ and close above the 3100 level (albeit slightly).  The doji formed at Wed’s market close sums it all – Markets are undecided! As long as the STI does not decisively clear above the 3230 resistance level, downward bias will still likely persist with 3000 as the psychological support.

In US, the S&P 500 also just managed to close a tad above the psychological 1600 level, notwithstanding downward revisions to US 1q13 GDP ( owing to revisions in consumer services). Reckon the Fed is likely to look beyond this print in its FOMC deliberations. In fact, after a brief bout of USD weakness upon the weaker-than-expected GDP release, the trend reversed and EUR/USD pierced thru' and closed below 1.30 at the end of NY session for the first time in almost 3 weeks.

Notwithstanding a short-term rebound (as the PBoC acts to calm markets’ frayed nerves), reckon that downward bias is likely to persist as HSI and HSCEI have collapsed below their 50dma as well as 200dma.

Malaysia KLCI –which has been the most resilient equity indice in ASEAN at this juncture- is looking vulnerable, having broken below the low of the immediate post-election rally daily candle and hugging its lower bollinger band, portending near term weakness. Should it close the post-election relief rally gap, reckon that support will be pegged at the psychological 1700 level.

It’s not exactly all gloom and doom. We might be seeing signs of an end of the corrective wave for the Nikkei, consistent with our earlier guidance during our Mon morning webinar. But before we jump the gun, the Nikkei has to consolidate decisively above the 13k level before we can reasonably assign high odds of a bounce.
 

Macro Data:

In US, GDP expanded 1.8% q-q saa in 1q13 based on revised est., weaker than the 2.4% reported earlier, owing to smaller increases in personal consumption expenditures than previously est.

In Singapore, manufacturing output rose 1.2% m-m sa in March, from an upward revised 3.6%. On a y-y basis, manufacturing output rose 2.1% y-y. Ex-BMS, manufacturing output rose 1.0% m-m sa, suggesting that the manufacturing recovery is broadening (driven by electronics). With US core capex orders registering strong gains, Singapore’s manufacturing sector might also receive a positive boost.

In France, nominal GDP rose by 0.5% q-q in 1Q13, after the 0.1% q-q growth in 4Q12. Household consumption rose by 0.2% q-q, after the 0.2% q-q growth in 4Q12. Investment fell by 0.6% q-q, after the 0.7% q-q drop in 4Q12. Exports fell by 0.5% q-q in 1Q13, after the 0.5% q-q drop in 4Q12. On y-y basis, GDP grew by 1.3% y-y in 1Q13, compared to the 1.1% y-y growth in 4Q12. ECB policy makers including President Mario Draghi said they'll maintain a loose monetary stance for as long as needed, while urging euro area governments to cut their deficits and boost investment.
 

Regional Market Focus

Singapore

• The benchmark STI closed marginally higher at 3,104.4 (+0.47%). The 1.9bn shares traded were worth S$1.3bn in value.
• Market opened higher today, possibly due to the positive performance of US indices as markets experienced a short-term rebound.
• We expect support from the 3,000 level, while downward bias may persist should the STI not clear above the 3,230 resistance level.  
• 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 rallied sharply on Wed in line with overseas markets on better-than-expected US economic data and amid a slowdown in portfolio rebalancing by foreign investors. The SET index ended the session up 39.75 points on Wed.
• Even though net foreign selling of Thai shares topped Bt16bn on Wed, the sell-off largely reflected the deal of MAKRO to the tune of over Bt17bn. Net-net, the pace of foreign portfolio rebalancing showed signs of slowdown with the return of buying while foreign investors increased their net long positions in derivatives market to more than 2,000 contracts, reflecting the unwinding of short positions and institutional buying continued amid end-of-quarter window dressing.
• Today the SET index is likely to continue its positive bias at least at the open, tracking overseas market gains. Even though data showed the US economy grew 1.8% in the first quarter, well below expectations for a 2.4% growth, the weaker-than-expected growth raised optimism about the reduced expectations of the Federal Reserve’s QE tapering. Domestic political concerns will come to the fore in the afternoon as the Central Administrative Court is scheduled to decide whether the government can go ahead with its Bt350bn water management scheme. If the court rules to suspend the project, the market may reverse course to the downside. We expect a trading range of 1400-1460 points for the SET index today.
• Resistance for the SET index is pegged at 1440-1475 and support at 1400-1380 today.

• Most Indonesian stocks rose on Wednesday (26/06), as stock markets in Asia gained following gains on Wall Street overnight. The Jakarta Composite Index (JCI) climbed 168.856 points, or 3.82%, to 4,587.728. Tailwind also came after S&P said Indonesia’s fuel price hikes are positive for the country’s sovereign debt. All major sectors finished in green on Wednesday, led by basic industry sector with 5.74%-gain, followed by consumer goods sector with 5.67%-advance, and infrastructure sector with 4.54%-rise. LQ45, the index tracking Indonesia’s blue-chip shares, added 35.885 points, or 4.99%, at 755.460. 220 shares advanced, 67 shares declined, and 187 shares remained unchanged Wednesday on the Indonesia Stock Exchange, where 3.98 billion shares worth IDR 6.72 trillion traded on the regular board. Foreign investors’ transactions accumulated to net sale of IDR 155.5 billion.
• The Jakarta Composite Index (JCI) will likely to extend gain today, after release of US growth data that subdued fears of the Federal Reserve tapering its bond purchase program sooner. We expect the JCI to advance today, and move with price band between 4,409 and 4,710.

• The Colombo bourse witnessed a drop for the 04th successive trading day, triggering the indices to drown further. The market witnessed a considerable active movements during the early hours amidst the positive news announced by the CBSL, in which the Monitory Board has decided to cut down the Statutory Reserve Requirement (SRR) of the commercial banks by 200 basis points (or 2%) to 6%, at its meeting held on 25th June 2013.This strategic enactment will be enforced from 01st July 2013 onwards. Further, the decision has been taken with the view of enabling the banking sector to further reduce lending rates, which would facilitate the credit growth of the economy. The ASPI managed to accumulate a few points during the early hours where it reached an intraday high of 6,102.31, but was unable to sustain the positive trend there on;  as at the closure, the index stood at 6,072.68 losing 13.54 points (-0.22%). The S&P SL20 index dropped by 16.80 points to close at 3,413.63. As at the daily closure, the total market capitalization amounted to LKR 2.33Tn while reducing the year to date gain to 7.59%. The turnover for the day (LKR 2.27Bn) was predominantly supported by 12 negotiated deals worth of LKR 1.85Bn. The volumes for the day (108.05Mn shares) were a massive increase of 612% against its previous trading day. Foreign participants were bearish during the day for the 02nd consecutive trading day where foreign sales of LKR 934.99Mn overtook foreign buying which amounted to LKR 298.17Mn, further resulting in the 02nd highest net foreign out flow (LKR 636.81Mn) figure for the year; this dragged down the year to date foreign in flow to LKR 15.58Bn. With regard to the local FOREX, the USD closed at LKR 130.46/- selling and LKR 127.28/- buying.

• The Australian share market on Wednesday surged as investors piled back into resources and banking stocks. The benchmark S&P/ASX200 index was up 75.5 points or 1.63 per cent to 4,731.7 points.
• Today (27/06/13), the Australian market looks set to open higher following a Wall Street surge after investors took weak economic data as a sign the Federal Reserve would maintain its aggressive bond-buying program, and after Labor dumped Julia Gillard as leader. The US Commerce Department slashed its estimate for first-quarter growth from 2.4 per cent to 1.8 per cent and,  locally, Kevin Rudd won back the Labor leadership from Prime Minister Julie Gillard in a caucus vote on Wednesday night.
• In economic news on Thursday, the Australian Bureau of Statistics (ABS) is due to release job vacancy figures for the three months to May. Blackham Resources managing director Bryan Dixon speaking at WA Mining Club luncheon.
• No major equities news is expected.

• HSI and CEI rebounded yesterday after PBOC confirmed providing liquidity to market and planning to use short-term operations to ensure market steady. HSI gained 482 points or 2.43% to 20,338. CEI gained 293 points or 3.31% to 9,164. Volume was HKD78.8 billion.
• Mainland banking sector led the rebound yesterday. ICBC (1398.HK), CCB (939.HK) and Minsheng Bank (1988.HK) all rose more than 6%.
• Yuexiu Property (123.HK), announced land acquisition in Hangzhou, PRC, climbed 8% to close at HKD1.9. HK banking sector, especially Dah Sing (440), has attractive valuation. P/B of Dah Sing is now 0.5, close to historical low.
• Technically, the next support will be at 20,000, resistance will be at 20,595.

Morning Note

Company Highlights

Sin Heng Heavy Machinery Limited announced that the Company is proposing to undertake a renounceable underwritten rights issue of 114,805,000 new ordinary shares at an issue price of S$0.16 for each Rights Share, on the basis of one Rights Share for every four existing ordinary shares (excluding treasury shares) in the capital of the Company held by Entitled Shareholders as at a time and date to be determined by the Directors for the purposes of determining the Shareholders’ entitlement under the Rights Issue, fractional entitlements to be disregarded. The Rights Shares will be issued under the 2012 General Mandate obtained at the 2012 AGM. As at the date hereof, the existing issued and paid-up capital (excluding treasury shares) of the Company consists of 459,220,000 Shares (Closing price: 0.225, -6.250%)

CapitaLand’s wholly-owned serviced residence business unit, The Ascott Limited, has secured a contract to manage its first Ascott-branded serviced residence in India. Slated to open by 2016, the 160-unit Ascott Ireo City Gurgaon is also Ascott’s first serviced residence in Gurgaon. The management contract was awarded by Ireo Private Limited, the flagship Special Purpose Vehicle (SPV) of the IREO Funds, India’s first and largest private equity fund dedicated to the Indian real estate sector. (Closing price: 3.050, +1.329%)

Sembcorp Industries announced that its joint venture in India, Thermal Powertech Corporation India, has signed an agreement with Mahanadi Coal Fields, a subsidiary of Coal India, for the supply of approximately 2.1 million tonnes per year of domestic coal over 20 years for its 1,320-megawatt power plant. The agreement will commence once the plant becomes operational in the second half of 2014. Sembcorp owns a 49% stake in TPCIL through its wholly-owned subsidiary, Sembcorp Utilities, while Gayatri Energy Ventures, a wholly-owned subsidiary of Gayatri Projects, owns the other 51% in TPCIL. In addition to this fuel supply agreement, the company has also secured a coal supply contract for one million tonnes per year of coal over 10 years with PT Bayan Resources in February 2012. Together, both contracts will supply approximately 60% of the plant’s total coal requirement. TPCIL is currently working with the relevant authorities in India to secure another fuel supply agreement for the plant by the later part of this year. (Closing price: 4.890, +0.411%)

Riverstone Holdings Limited announced the issue and allotment of an aggregate of 281,000 ordinary shares in the capital of the Company at the exercise price of S$0.31 each, pursuant to the exercise of the 281,000 warrants. These new shares will be listed and quoted on the Singapore Exchange Securities Trading Limited on 27 June 2013. The new shares issued shall rank pari passu in all respects with the existing shares of the Company. (Closing price: 0.500, -1.961%)

Macquarie APTT Management Pte. Limited as trustee-manager of Asian Pay Television Trust notes that Taiwan Broadband Communications Group has received approval from the National Communications Commission of Taiwan to commence the partial expansion of its Hybrid Fibre Coaxial cable network. As noted in the APTT prospectus dated 16 May 2013, TBC recently applied to expand the cable network in one of its five franchise areas. If implemented, the expansion would provide TBC with the opportunity to deliver its suite of services to up to an additional 400,000 homes in the greater Taichung area. The Trustee-Manager and TBC management are evaluating the opportunity and will keep the market appropriately informed of further developments. (Closing price: 0.840, -0.592%)

Tuan Sing Holdings Limited announced that it has entered into a Sale and Purchase Agreement with Robinson Point (Cayman) Limited pursuant to which the Company shall acquire from the Vendor the entire issued share capital of Robinson Point Limited which legally and beneficially holds the entire issued share capital of 39 Robinson Road Pte. Ltd. The Investment Asset is a 21-storey freehold commercial building with car park spaces. The building has a total gross floor area of approximately 169,250 square feet and a net lettable area of approximately 135,270 square feet. Currently, the building is fully rented to third party tenants with durations of mainly three years. The aggregate consideration for the Share Acquisition will be satisfied wholly in cash and is arrived at on a willing-buyer and willing-seller basis after arms-length negotiations, based on the adjusted consolidated net asset value of the Target Companies as at 1 October 2013 after taking into account the value of the Investment Asset agreed to be S$348,931,000. (Closing price: 0.340, 0%)

Keppel REIT, through CFS Managed Property Limited as its Australian sub-trust trustee, has entered into an agreement with United Super Investments (8 Exhibition Street) Pty Ltd for the acquisition of their 50% interest in 8 Exhibition Street in Melbourne, Australia. 8 Exhibition Street is located in the prime part of the Melbourne Central Business District and is one of the city’s architectural landmarks. Rising on top of the historic Herald and Weekly Times Building, the 35-storey freehold prime commercial building has a total net lettable area of approximately 480,309 sf with 3,304 sf of ancillary retail space on the ground floor. The building has a 4.5 star NABERS energy rating. The acquisition of the 50% interest in the Property, which is expected to be immediately accretive to Keppel REIT’s distribution per unit, is at a price of A$160.2 million or approximately S$192.4 million1. The Manager intends to fund the Acquisition with an optimal combination of equity and debt to provide DPU accretion to Unitholders, and work towards achieving an optimum level of gearing. (Closing price: 1.285, +1.181%)

Source: PhillipCapital Research - 27 Jun 2013