Morning Market Commentary

- STI: -0.30% to 3140.9                      - SET: +0.38% to 1451.9
 - JCI: -0.86% to 4777.5                     - KLCI: +0.09% to 1775.1
- HSCEI: +1.67% to 9311.4               - Hang Seng: +1.78% to 20803.3
- Nikkei 225: +1.28% to 13852.5       - ASX200: +1.49% to 3338.6
- India NIFTY: +0.97% to 5898.9        - S&P500: +0.54% to 1614.96

MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst
 
We are increasingly seeing a dichotomy between PMIs of DM (developed mkts) and EM (emerging mkts) as the data continues to stream in. For instance, the US is being buoyed by a rise in new orders while China is weighed down by a contraction in orders. Key component to scrutinise in the global as well as regional PMIs released this week is the new orders – the lack of  which will signal that final demand is actually weaker-than-expected and weakens the thesis of a 2H13 rebound.

We have a couple of risk events this week that would set the tone for markets in the near term, apart from the regular release of the monthly PMIs.

(1)  Will the ECB taper (i.e. raise interest rates) when they meet on 4th July (Thurs)? The slightest hint of tapering would likely see EZ sovereign yields (esp. the peripheral ones) tighten significantly and that would definitely hamper recovery.

Our base case is for the ECB to stand pat, maintaining the main refinancing rate at 0.5% and deposit facility rate at 0% (rather than negative as it is not warranted at this juncture).

 (2)  Non-farm payrolls for June will be released on 5th July (Fri). This data points bears additional significance in view of the annual Jackson Hole symposium (July 12-13).

In Indonesia, notwithstanding June’s relatively benign inflation print, do expect July inflation to come in much higher as the effects of the fuel price hike filter through and demand rises during Ramadan.

We do not rule out the possibility of another 50bps of FASBI rate hike to 4.75 and another 25bps hike in key policy rate to 6.25% % by year end. We reiterate that we expect headline inflation to rise around 8% y-y in 2H13 (possibly peaking in Oct).

The STI continued to tread along its 10dma on Friday. But as long as the STI does not decisively clear above the 3230 resistance level, downward bias will still likely persist with 3100 as near-tern support, followed by 3000 as the psychological support.

Macro Data:

In the US, the ISM manufacturing PMI rebounded to expansionary territory, from 49.0 in May to  50.9 in June, boosted by a turnaround in new orders and production. However, the US Markit PMI eased from 52.2 in May to 51.9 in June.

In the EZ, final manufacturing PMI data confirmed an increase in the aggregate manufacturing activity from 48.3 in May to 48.8 in June (a 16-month high).

In Thailand, headline inflation was stable, gaining 2.25% y-y in June, almost unchanged from the preceding month. Core inflation -which excludes energy and food costs- eased and remained subdued, rising 0.88%, still within the Bank of Thailand's target range of  0.5% to 3.0%

In Indonesia, inflation accelerated 5.9% y-y in June, faster than the 5.5% registered in the preceding month. But expect July inflation to come in much higher as the effects of the fuel price hike filter through and demand rises during Ramadan.

In China, HSBC manufacturing PMI fell to 48.2 in June, indicating a contraction in the nation's small and medium manufacturing businesses. Official PMI dropped to 50.1 in June, the lowest reading in 4 months, from the 50.8 reading in May, indicating a slowdown in the expansion of the nation's manufacturing sector. The government has signaled an increased tolerance in the nation's economic slowdown, and we expect the liquidity to tilt towards tight in the near term.

Regional Market Focus

Singapore

• The benchmark STI closed marginally lower at 3,140.93 (-0.30%). The 2.0bn shares traded were worth S$1.1bn in value.
• Market activity was rather weak as investors seek clearer market direction.
• Events that could drive near term direction include the upcoming results season, and risk events highlighted in our morning commentary.
• 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

• The SET index extended its winning streak to a fourth day last Fri as renewed heavy foreign buying allowed the index to successfully finish the session above 1450 points. 
• Eyes should be on whether foreign fund flows will continue heading into 3Q13 after foreign buying returned to Thai stocks to the tune of over Bt10bn over the last two sessions before the end of 2Q13. Market sentiment in Asia this morning received a boost from a batch of better-than-expected US economic data showing ISM manufacturing activity grew in Jun and construction spending rising to its highest level in nearly 4 years in May. Overall we believe the SET index could set for further rebound today but investors should also watch out for wild intraday swings. We expect a trading range of 1440-1470 for the SET index today.
• Key factors to watch includes domestic political situation after cabinet reshuffle, anti-government protests and leadership change at red-shirt UDD.
• We peg resistance for the SET index at 1470-1490 and support at 1440-1400 today.

Indonesia

• The Jakarta Composite Index (JCI) fell Monday (01/07), amidst declines on most stock markets in Asia on concerns about slowdown in manufacturing activity in China and South Korea. The JCI shed 41.443 points, or 0.86%, to end at 4,777.452. Eight of the 9 major industry sectors finished in red, with consumer goods sector declined 2.19%, miscellaneous industry tumbled 1.97%, and basic industry sector slid 1.51%. Most of the blue-chip shares also declined, with the LQ45 index fell 9.295 points, or 1.16%, to 794.704. From the economic front, Statistics Indonesia reported inflation in June rose 1.03% from a month earlier, or 5.9% year-on-year. Recent subsidized-fuel price hikes are expected to have impact on July's inflation. Separate report released on Monday showed trade deficit of USD 590.4 million, as exports dropped 4.49% (yoy) and imports fell 2.19% (yoy). 146 shares fell and 106 shares advanced Monday on the Indonesia Stock Exchange, where 2.22 billion shares worth IDR 3.32 trillion traded on the regular market. Foreign investors posted net sale of IDR 301.5 billion in total.
• The Jakarta Composite Index (JCI) will likely to rebound today, as sentiments in global markets improved after better-than-forecast manufacturing data from the US. On the downside, however, concerns about inflation spike in Indonesia this month may put a halt to stock gains. The country's finance minister said inflation may rise to 6% this month. We expect the JCI to climb with moderate gains today, and move within the price band of 4,711 and 4,849.

• The Colombo bourse commenced the 2nd half of the year, continuing the Friday’s positive momentum to close positive for the third consecutive trading day. The benchmark ASPI Index closed 11.74 points or 0.19% higher at 6,132.75 and the S&P SL20 stood at 3,447.74 gaining 16.00 points or 0.47%. As at the day’s closure the market capitalization stood at LKR 2.36Tn resulting in an YTD gain of 08.66%. The market PER and PBV stood at 16.62 and 2.27 respectively.
• The recorded turnover for the day amounted to LKR 562.03Mn; this was a gain of 111.35% against the previous trading day. Investor attractions were largely visible on Bank Finance & Insurance (BFI) sector, with 1,211 trades out of the total 4,449 trades being lodged within the day, hence supporting the sector to emerge as the top contributor under the sectorial summary providing LKR 325.22Mn. Shares totaling up to 20.72Mn were traded during the day resulting in an increase of 62.57% compared to the previous trading day. Price losers outperformed the Price gainers by 70:107. Foreign participants appeared to be bullish during the day resulting in a net foreign inflow of LKR 160.9Mn; this extended the year to date net foreign inflow to record LKR 15.34Bn. In regard to the local FOREX market, the USD closed at LKR 131.98/- selling and LKR 128.78/- buying

• The Australian share market on Monday started the new financial year on a negative note due to investor concerns about the world's second largest economy, China. More than $27.5 billion was wiped off the value of the market after manufacturing data released in China showed activity barely growing, down to 50.1 points from 50.8 in May.  The benchmark S&P/ASX200 index was down 92.3 points or 1.92 per cent to 4,710.3 points.
• Today (02/07/13), the Australian market looks set to open higher following gains on US and European bourses on encouraging manufacturing data out of  Europe.  The SFE is pointing upwards 54 points or 1.15 per cent to 4,742.
• In economic news on Tuesday, the Reserve Bank of Australia holds its monthly board meeting and makes its interest rate decision.
• In equities news, BHP Billiton Iron Ore president Jimmy Wilson and WA Premier Colin Barnett officially open BHP Billiton Iron Ore's Integrated Remote Operations Centre (IROC) in Perth.

Hong Kong

• HSI and CEI gained 363 points to 20,803 and 152 points to 9,311 respectively last Friday. Volume dropped to HKD68.98 billion.
• 44 of 50 HSI constituent stocks gained last Friday. Hengan Int’l (1044.HK) performed the best due to attractive valuation. The Group’s 2012 ROE was 26.6%, compared with 23.2% in 2011. Forecast P/E is 25.3x.
• For the first half of 2013, HSI dropped 1,854 points or 8.18%, CEI dropped 2,125 points or 18.58%. Investors are concerned about earnings decline of China companies due to economy restructuring.
• Technically, HSI climbed above 10-MA, 20,534, giving positive sign. The next resistance will be at 21,000 and support will be at 10-MA.

Morning Note

Company Highlights

Petra Foods Limited today announced that it has on 30 June 2013 successfully completed the sale of its entire Cocoa Ingredients Division to Zurich-based Barry Callebaut AG (“Barry Callebaut”) which had been announced on 12th December 2012. The sales proceeds received upon completion comprised the consideration paid by Barry Callebaut for the operating assets and working capital associated with the Cocoa Ingredients business. At this point, the sales proceeds are estimates subject to final post-completion adjustments. The estimated sales proceeds received at completion are US$860 million. The reduced sales proceeds were due primarily to a lower level of working capital by about US$74 million delivered at completion. (Closing price: 3.900, +3.175%)

TRIYARDS Holdings Limited, an offshore vessel fabrication and engineering solutions provider to the oil and gas industry, achieved a new milestone with its first ship repair work for its newly commissioned floating dock, the Lewek Hercules. The 1,554 dwt offshore supply vessel Mermaid Challenger is currently undergoing repair and maintenance work in TRIYARDS' 10,000MT floating dock which was converted from a load out barge. The Group has received several enquiries ever since the dock's commissioning in April and the Lewek Hercules already has another contract in its pipeline. (Closing price: 0.685, -1.439%)

Singapore Technologies Engineering Ltd announced today its marine arm, Singapore Technologies Marine Ltd, through its wholly owned subsidiary STSE Engineering Services Pte Ltd has injected S$1.5m into the capital of its wholly owned subsidiary, STSE (Shanghai) Co. Ltd. as part of the progressive planned investment. This brings STSE’s total share capital contribution in STSE Shanghai from S$4.8m to S$6.3m. (Closing price: 4.170, -0.477%)

OKP Holdings Limited wishes to announce that the tender for improvement to Stamford Canal (from Napier Road to Marina Reservoir) (the "Contract") by the Company's wholly-owned subsidiary, Or Kim Peow Contractors (Pte) Ltd, had been accepted by PUB.The amount of the Contract is S$6,727,000 and the commencement date for the Contract is 1 July 2013. The Contract is expected to be completed by 31 October 2014. (Closing price: 0.395, -1.250%)

Metech International Limited, a leader in the responsible recycling of electronic waste, has entered into a sale and purchase agreement with private investment holding company, Tenneco Works Limited. Under the agreement, the Group is proposing to sell 2,273,750 ordinary shares, or 51%, of its wholly-owned subsidiary, Tonkin Recycling Pte. Ltd. for a consideration of S$2.3 million. Tonkin is the holding company of, and owns a 100% shareholding interest in Aton Sludge Treatment (Jiangyin) Co., Ltd. a wholly-owned foreign enterprise incorporated in China. Aton holds a Build, Operate and Transfer concession granted by the Jiangyin government in Jiangsu province, China, to own and operate a sludge treatment plant for 30 years since 2009. (Closing price: 0.018, +5.882%)

Source: PhillipCapital Research - 2 Jul 2013