Morning Market Commentary

- STI: +0.44% to 3118.0                     - SET: +1.55% to 1446.5
- JCI: +1.92% to 4675.8                     - KLCI: +0.62% to 1751.6
- HSCEI: -0.07% to 9158.6                - Hang Seng: +0.50% to 20440.1
- Nikkei 225: +2.96% to 13213.5      - ASX200: +1.28% to 3302.1
- India NIFTY: +1.68% to 5682.4       - S&P500: +0.62% to 1613.2

SINGTEL COMMENTARY:

By Ken Ang, Telcos Analyst

SingTel's (Accumulate, TP: S$4.07) bid for a Telco Licence in Myanmar was unsuccessful. Myanmar has granted licenses to Norway's Telenor and Ooredoo of Qatar. However, we are of the opinion that while this may reduce potential earnings growth, there are risks involved in entering Myanmar. This includes high capital expenditure requirements but uncertain penetration rates and revenue. With lower capex requirements, this may increase SingTel's ability to offer special dividends in the medium term. We think that SingTel continues to offer higher growth potential relative to its local peers, due to its overseas associates, and investments in Digital initiatives.

MARKET OUTLOOK:

By Ng Weiwen, Macro Analyst
 
1.         Fade the odds of an abrupt rate hike. During New York session overnight, Dudley (voting member of FOMC) and Lockhart (non-voting member) attempted to ease concerns of a premature tapering of large scale asset purchases by indicating the scaling back of QE asset purchases hinged on the macro outlook, rather than a calendar date. Now we expect this reassurance to soothe market's frayed nerves, likely resulting in equities and treasuries to firm  up after a recent bout of volatility.
 
2.         Expect further near-term weakness in the Hang Seng Index (HSI) today (Fri) as it closed with a bearish pin-bar yesterday. With the HSI the failing to clear its 2010 highs and slumping below its 50d and 200dma, a bearish head & shoulders top is formed (on a weekly time frame), portending further weakness.
 
3.         For gold, don't attempt to catch falling daggers! Gold pierced thru' the 1200 psychological level during New York session yesterday. Notwithstanding the possibility of a technical (dead cat) bounce up, be prepared for deeper setbacks (i.e. downward bias persist). Next key support for gold is pegged at 1157 (Jul 2010 low).
 
Our UW for gold since Oct12 and it has proved to be a prescient call. Gold has tumbled to multi-year lows. Notwithstanding a brief respite, we reckon the downward bias for gold is likely to continue to persist on account of the following:
a) stronger USD on improved US trade balance (shale gas boom) as well as gradual pick up in economy
b) receding tail risks on the  EZ front (as reflected by the decline in 10yr yields of peripheral EZ sovereigns)
c) awkward trend of disinflation worldwide (US, China and EZ) notwithstanding the synchronised monetary easing by major central banks. Subdued inflation diminish the importance of gold as a hedge against rising inflation

(Please see our Global Macro Asset Strategy reports 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:

In US, macro data released on Thurs were encouraging and in line with expectations. Specifically,  real consumption rose 0.2% m-m sa while PCE deflator rose 0.1% m-m sa, alleviating concerns of deflationary pressures. Separately, the 4-week moving average of initial jobless claims eased 3k to 346k, reflecting a continued recovery in labour market. On the housing market, pending home sales surged 6.7% m-m (a 6 yr high).
 
In Euro Zone, the economic confidence rose to 91.3 in June from 89.5 in May, the biggest jump since July 2010, adding to signs that the region is starting to recover from recession. Liquidity is expected to be accommodative in the near future as the ECB President Mario Draghi said that policy makers will maintain a loose monetary stance for as long as needed.
 
 In China, industrial profit rose by 12.3% y-y in the 5 months period through May, compared to the 11.4% y-y growth in the 4 months period through Apr. The nation’s benchmark money-market rate fell for a fifth day, the longest run of declined in two months, on signs that the central bank is adding funds selectively to ease the recent severe cash squeeze. The weak preliminary HSBC manufacturing PMI in June indicates a contraction over previous month, adding to the signs that China’s economic recovery is losing momentum along with the government’s increasing tolerance in a slower economic growth.
 

Regional Market Focus

Singapore

• The benchmark STI closed higher at 3,118.03 (+0.44%). The 1.9bn shares traded were worth S$1.6bn in value.
• Market continued to open higher today, as concerns over the tapering of QE ease gradually.   
• We expect support from the 3,000 level, while downward bias may persist should the STI not clear above the 3,230 resistance level.
• We think that the recent correction in the market may provide opportunity to enter the market, as markets are expected to consolidate in the absence of clear catalyst.  
• 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 took a rollercoaster ride on Thu. The SET index opened sharply higher at the open before gains were pared after the court’s order for the government to complete public hearings on water management projects. The main index ended the session up 22.07 points at 1446.45 points.
• Foreign buying returned in a big way in both equities and derivatives markets on Thu. Net foreign buying of Thai shares rose to the tune of nearly Bt5.6bn and foreign investors increased their net long positions in futures to 2.5k contracts. Renewed foreign buying would allay some fears of heavy portfolio rebalancing by foreign investors while end-of-quarter institutional window dressing should lend support to the market.
• Technical signals looked better after the SET index crossed back above its 200-day moving averages at 1440 but the extreme level of volatility is likely to persist. The court’s order poses a setback for the government’s water management scheme.  In addition to worsening exports, domestic political protests also bear close watching.
• For investment strategy, we advise investors to raise equity holdings to 50% of the short-term portfolio after a breakout above 1440 but investors should also be braced for wild swings and gradually book profits around 1500 +/-.
• Today we peg resistance for the SET index at 1480-1490 and support at 1415-1400.

• Most stock traded on the Indonesia Stock Exchange (IDX) rose Thursday (27/06), amid gains in Asia stock markets, with investors' optimism that the US Federal Reserve will maintain its asset purchases for an extended period. The Jakarta Composite Index (JCI) rose 88.021 points, or 1.92%, to 4,675.749, with all of its major industry sectors finished in green. Infrastructure sector led gains with 4.41%-advance, consumer goods sector followed with 3.47%-climb, and miscellaneous industry sector with 2.28%-gain. Among the blue-chip gainers, Bank Tabungan Negara (BBTN) rose 5.61%, Telekomunikasi Indonesia (TLKM) gained 5.37%, and Unilever Indonesia surged 5.00%. The LQ45 index added 17.927 points, or 2.37%, to close at 773.387. 170 shares gained and 100 shares fell Thursday on the Indonesia Stock Exchange, where 3.73 billion shares with a total value of IDR 6.6 trillion changed hands on the regular board. Foreign investors' transactions accumulated to net purchase of 50.09 billion Rupiah.
• With markets cheering upbeat economic data from the US and Japan, the Jakarta Composite Index (JCI) may post another climb today, along with positive sentiments in Asia this morning. On the downside, however, anticipated domestic inflation may put halt to gains. We expect the JCI to rise today, with short-term price band at between 4,595 and 4,773.

• It is observed that the Bourse is driving back to the green territory whist recovering from its four days of consecutive losses.  The ASPI Index closed 38.68 points (or 0.64%) higher at 6,111.36; having lost 138.76 points or 2.25% during the past 4 trading days. The S&P SL20 too closed positive at 3,426.48 gaining 12.85 points or 0.38%. As at the daily closure, the total market capitalization stood at LKR 2.35Tn, with a year to date gain of 8.28%. Seven (07) off-board deals were witnessed during the day, whilst making a notable 76.32% contribution to the daily aggregate turnover of LKR 1.31Bn. During the day, a total of 23.71Mn shares changed hands. In terms of share price movement, 131 companies gained while only 47 companies lost. Foreign participants appeared to be bearish for the third consecutive trading day, resulting in a net foreign out flow of LKR 496.61Mn whilst dropping the year to date net foreign inflow to LKR 15.08Bn. With regard to the local FOREX, the USD closed at LKR 131.26/- selling and LKR 127.98/- buying.

• The Australian share market on Thursday closed significantly higher for a second straight day as investors grew more confident about China's financial system. The benchmark S&P/ASX200 index was up 79.6 points, or 1.68 per cent, at 4,811.3 points.
• Today (28/06/13), the Australian market looks set to open higher after positive rallies on overseas markets as traders digested news of an unexpected drop in German unemployment, solid data from the US and comments from a top Federal Reserve official that the central bank would not hastily end its stimulus program.
• In economic news on Friday, the Reserve Bank of Australia is due to release financial aggregates for May.  In Perth, WA Premier Colin Barnett, BHP Billiton iron ore president Jimmy Wilson, Fortescue Metals Group chief executive Nev  Power and Santos WA and NT vice president John Anderson are scheduled to speak at The Australian and Deutsche Bank Business Leaders Forum. Graincorp chief executive Alison Watkins is scheduled to speak at American Chamber of Commerce lunch.
• No major equities news is expected.

• HSI gained in the 3rd consecutive trading day, closed at 20,440 (+101). But CEI dropped 6 points to 9,159.
• China coal sector led the drop of CEI. Yanzhou Coal (1171.HK), China Shenhua (1088.HK) and China Coal (1898.HK) lost 5.1%, 3.1% and 3.6% respectively due to lower coal price. We still suggest investors leaving this sector.
• After results announcement, Tsui Wah (1314.HK), Fairwood (52.HK) and Cafe De Coral H (341.HK), 3 Hong Kong fast food chains, dropped 8.4%, 3% and 1.5% respectively. But we prefer these stocks due to their stable business models.
• Technically, HSI rose close to 10-MA, 20,550. Going above it will give a positive signal. We expect a short-term rebound continues. Next resistance will be at 21,000.

Morning Note

Company Highlights

Chemoil announced that wholly owned subsidiary Chemoil International Pte Ltd has recently signed its inaugural USD300,000,000 364-Day Committed Revolving Credit Facility and USD500,000,000 364-Day Uncommitted Secured Receivables Borrowing Base Facility. The proceeds from the RCF will be used to finance the general corporate and working capital requirements. Seven international financial institutions from Asia, Europe and the USA joined BNPP in the transaction. The RBBF will be used for the general financing of receivables and other general corporate purposes. Nine international financial institutions from Asia, Europe and the USA together with BNPP lent support to the RBBF. (Closing price: 0.340, +1.493%)

China Fishery Group Ltd intends to start arbitration proceedings against Veramar Azul in Peru over the latter's failure to transfer a call option that will let the Singapore-listed firm raise its stake in Copeinca ASA. China Fishery said the arbitration against Veramar will not affect its takeover offer for Copeinca, which is Peru's second-largest fishing company. China Fishery said in a stock exchange filing it effectively controls 65.26 per cent of Copeinca shares, not including the call option shares from Veramar. (Closing price: 0.340, +1.493%)

ISDN Holdings Limited, has through its wholly owned subsidiary Aenergy Holdings Limited, yesterday inked a nonlegally binding Memorandum of Understanding to acquire 80% shareholding interest in three Indonesian energy-related companies – PT Alabama Energy, PT Prisma Paluta Energy and PT Charma Paluta Energy - paving the way for ISDN to gain a firm foothold in the hydropower industry in Sumatra which is one of Indonesia's key islands, and opening up a vista of new business opportunities for the Group as well as extending its hydropower footprint that include planned mini hydropower developments in South and Central Sulawesi announced earlier. (Closing price: 1.215, -9.665%)

Yoma Strategic Holdings Limited announced that the Digicel consortium is disappointed to have been notified that it has not been successful in securing one of the two nationwide telecommunications licences on offer in Myanmar. Digicel remains committed to exploring commercial opportunities in Myanmar and will be evaluating these on an ongoing basis. (Closing price: -, -%)

TEE Land Limited announced that it has entered into an Option to Purchase Agreement to acquire a freehold land with an existing building with an estimated land area of 96,649 square feet, at PN 9425 Lot 27, Bandar Petaling Jaya, Negeri Selangor, Malaysia for a purchase consideration of RM40 million. The Proposed Acquisition adds to the Group’s existing project at Cyberjaya, also in the State of Selangor,
Malaysia. The site, which is presently zoned for “Industrial” use has potential to be re-zoned for “Commercial” use and re-developed into a mixed development project, with a potential plot ratio of 4. The plot is well situated within the mature town of Petaling Jaya. It is easily accessible and located within short driving distance to PJ Hilton Hotel, a number of schools and medical centres. It is also a short distance away from the local LRT station. (Closing price: 0.385, -1.282%)

SATS Ltd. announced that its wholly-owned subsidiary, SATS Investments Pte. Ltd., has on 27 June 2013 entered into a share sale and purchase agreement with Adel Abdulmajed S Abuljadayel pursuant to which SIPL has agreed to transfer all its equity interest in ADEL ABULJADAYEL FLIGHT CATERING COMPANY LIMITED for a cash consideration of US$18,400,676 (equivalent to approximately S$23.37m1) upon the terms and conditions of the Sale Agreement. Under the Sale Agreement, SIPL has agreed to sell its entire interest amounting to 20,000 issued ordinary shares of Saudi Riyals 100 each in the capital of AAFC free from all encumbrances. The Purchaser is an existing shareholder of AAFC. (Closing price: 3.280, +0.613%)

Source: PhillipCapital Research - 28 Jun 2013