Morning Market Commentary

- STI: -1.38% to 3129.5                      - SET: -1.39% to 1443.6
- JCI: -3.20% to 4577.15                    - KLCI: -0.15% to 1769.2
- HSCEI: -3.30% to 8900.3                - Hang Seng: -2.48% to 20147.3
- Nikkei 225: -0.31% to 14055.6       - ASX200: -1.04% to 3301.8
- India NIFTY: -1.48% to 5770.9        - S&P500: +0.08% to 1615.4

MARKET OUTLOOK:

By Ng Weiwen, Macro Analyst
 
In Singapore, consistent with our guidance, traders would have done well fading the Tues bounce. The STI continued to shy away from the 3200 level on Wed. Our base case has been that 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. Friday's US non-farm payrolls might provide the impetus for a break in either direction.

Meanwhile, Singapore PMI continued to buck the regional trend, with manufacturing activity expanding at a faster pace (albeit slightly) in June, a stark contrast from its peers in South Korea and Taiwan. This could be attributed to a divergence in electronics cycle. With business capex investment picking up (particularly in US and Japan), midstream electronic component manufacturers (such as Singapore) are more likely to benefit compared to producers of iPhones and tablets (South Korea and Taiwan).

Key risk event today: Will the ECB taper (i.e. raise interest rates) when they meet today (4th July)? The slightest hint of tapering would likely see EZ sovereign yields (esp. the peripheral ones) tighten significantly and that would definitely hamper recovery. EZ is essentially in a fragile equilibrium, evidenced by a surge in 10yr Portugal sovereign yields by around 139bps to 8.11% (an 8-mth high).

Our base case is for the ECB to stand pat (esp with easing in the pace of contraction in EZ economic activity), 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).

Ahead of Friday’s release of non-farm payrolls (which influence the Fed’s tapering decision), Wed’s data provide some clues. ADP and employment component of ISM manufacturing and non-manufacturing indices suggest that unemployment will likely inch down lower from 7.6% in May to 7.5% in June.

We sighted a bearish ‘dark cloud cover’ technical setup in the HSI and HSCEI. Price action suggests that bears are firmly in control, overwhelming the bulls. Downward bias is likely to persist in the near term. In essence, both the HSI and HSCEI have collapsed below their 50dma as well as 200dma, and even the 10dma support level – yesterday.

Macro Data:

In US, the 4-week moving average of initial jobless claims held steady at 346k, reflecting a continued recovery in labour market. Separately, ADP payrolls data showed gains of 188k private sector jobs in June, compared to 134k in May.

In Singapore, manufacturing activity continued to expand in June - at a quicker pace. Specifically, the headline PMI rose by 0.6pts m-m to 51.7. Though, the pace of expansion in the electronics cluster eased with the electronics PMI declining 0.2pts m-m to 51.2 in June.

In China, official non-manufacturing PMI reported 53.9 in June, after the 54.3 reading in May, indicating a slower expansion in non-manufacturing sector. HSBC services PMI reported 51.3 in June, barely changed from the 51.2 reading in May, indicating a weak expansion in services sector. These data, together with the weak manufacturing PMIs reported earlier, indicated a continued slowdown in the nation's economy.

Regional Market Focus

Singapore

• The benchmark STI closed lower at 3,129.49 (-1.38%). The 2.0bn shares traded were worth S$1.2bn in value.
• The STI continues to consolidate at current levels.  We think this is expected to continue till clearer signs, potentially from near term risk events, appear.
• 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 sharply tumbled in the afternoon trade, tracking losses from European equities amid political crisis in Portugal. The SET index finished the session down 20.41 points at 1,443.57 points on Wed.
• The overall market picture remains very fragile after political turmoil in Portugal drove bond yields above 8% and brought Europe’s financial crisis back to the fore while political tensions in Egypt sent oil prices on a steady rise.
• Foreign investors turned net sellers of Thai equities again to the tune of over Bt3bn on Wed after foreign buying returned late last week in the aftermath of heavy sell-offs over the past month. Under this circumstance, we believe trading is likely to remain cautious while awaiting fresh trading cues from ECB and BOE meetings today and ahead of key US labor market data due out tomorrow.
• Today we peg resistance for the SET index at 1460-1475 and support at 1440-1420. 

• The Jakarta Composite Index (JCI) tumbled Wednesday (03/07), after the World Bank lowered its forecast on Indonesia's economic growth this year, and amid fears that its central bank will raise its benchmark rate at the meeting next week. The JCI lost 3.20%, or 151.551 points, to finish at 4,577.153, with all major industry sectors ended in red. Shares in property and construction sector fared worst on Wednesday, as the sector index plunged 4.51%. Trade and services sector and finance sector followed with 3.92% and 3.77%-drop, respectively. LQ45, the index measuring Indonesia's blue-chip shares, shed 28.815 points, or 3.67%, to 755.310. The World Bank on Tuesday said it expect Indonesia's economy to grow slower than previously forecast, at 5.9%, compared to previous estimate at 6.2%. Inflation is seen to rise steeply to 9% this year. The forecast spurred sell-offs in Indonesia stock market on Wednesday. Many expect Bank Indonesia (BI) to hike its benchmark rate in the meeting slated on Jul 11, in order to cope with inflation after the government raised subsidized fuel prices in mid June. Decliners outpaced gainers by 9 to 1 Wednesday on the Indonesia Stock Exchange, where 2.7 billion shares worth IDR 4.8 trillion traded on the regular market. Foreign investors' posted net sale of IDR 877.3 billion.
• The Jakarta Composite Index (JCI) looked set for a moderate rebound today, as improved sentiments in the US and Asia markets - spurred by private sector jobs report in the US - may provide support for investors looking for bargains after the JCI plunge on Wednesday (04/07). On the downside, however,  cautions ahead of the July 11 Bank Indonesia board of governors meeting may weigh on the JCI. We estimate the JCI to moderately advance today, with price band between 4,485 and 4,762.

• The Colombo bourse witnessed a drop during the day ending its four consecutive days rally, resulting in the indices to conclude within the red terrain; this was mainly due to the prevailed selling pressures. The ASPI index closed 22.82 points (or -0.37%) lower at 6,117.97 and the S&P SL20 closed at 3,433.00 losing 29.51 points (or -0.85%). The daily turnover of LKR 883.15Mn, was predominantly supported by 6 negotiated transactions worth LKR 529.15Mn (nearly 60%); noting an increase of 86.84% against the previous trading day. With regard to the sectorial contribution, Bank Finance & Insurance (BFI) sector topped the list providing LKR 392.75Mn; the sector witnessed considerable investor interest logging 1,365 trades, hence resulting in a total volume of 20.65Mn shares being traded. Manufacturing (MFG) sector also performed well adding LKR 305.21Mn to the turnover. During the day, a total of 38.16Mn shares were traded, resulting in a gain of 60.57% against the previous day.  Price losers outstripped the price gainers by 128:48. A net foreign inflow of LKR 17.69Mn was recorded during the day, resulted by foreign purchases worth LKR 267.72Mn and sales of LKR 250.02Mn; the YTD net foreign inflow currently stands at LKR 15.35Bn. As at the daily closure, the USD stood at LKR 132.20/- selling & LKR 129.02/- buying.

• The Australian, share market on Wednesday continued its rollercoaster start to the new financial year, dropping more than 1.75 per cent and more than $26 billion wiped from its value. The benchmark S&P/ASX200 index was down 89.9 points or 1.86 per cent to 4,744.1 points.
• Today (04/07/13), the Australian market looks set to open higher after gains on Wall Street, helped by better-than-expected US jobs growth.
• In economic news on Thursday, Reserve Bank of Australia deputy  governor Philip Lowe is scheduled to address  the Second Conference on Global Financial Stability and Prosperity in Sydney. The Australian Bureau of Statistics is due to release May's building approvals figures. And the NSW government is expected to make an announcement regarding casino bids by Echo Entertainment and James Packer's Crown group.
• No major equities news is expected.

• HSI dropped 511 points or 2.48% to 20,147. CEI lost 303 points or 3.3% to 8,900. Volume was low at HKD68 billion.
• 47 of 50 HSI constituent stocks declined. China Shenhua (1088.HK) and China Coal (1898.HK) lost 6.9% and 6.6% respectively. Kunlun Energy (135.HK) declined in the 2nd consecutive days with 6.36% after China government raised natural gas prices for non-residential use
• As we expected, China banking sector was weak. ICBC (1398.HK), Minsheng Bank (1988.HK) dropped more than 4%. We don’t prefer this sector in short-term due to credit crunch, especially the China banks with small cap.
• Technically, HSI dropped below 10-MA, giving negative sign. We stay bearish in short-term and the next support will be at 20,000.

Morning Note

Company Highlights

PARKWAY Life Reit is building up its Japanese portfolio with the purchase of yet another two nursing homes for $23.1 million. Colliers International had valued the properties Palmary Inn Shin-Kobe in Hyogo at $18 million and Heart Life Toyonaka in Osaka at $6 million, as at April 15. The two homes have an average occupancy rate of 85 per cent, as at June 19. PLife Reit expects to generate a net property yield of 7.1 per cent with the two buys from Kenedix Inc, from whom it previously acquired 20 nursing homes. "With Abenomics afoot and the Japan government's support for the healthcare industry boosting interest in aged care facilities, this sector looks set to continue growing," said Yong Yean Chau, CEO of Parkway Trust Management, manager of the Reit. (Closing price: 2.370, +0.851%)

TEE Land Limited is pleased to announce that its associated company, Chewathai Limited, has entered into a Sale and Purchase Agreement to acquire a freehold land with an estimated land area of 10,893 square feet at Pracharat Sai 2 Road, Bangsue SubDistrict, Dusit (Bangsue) District, Bangkok, Thailand for a purchase consideration of THB 67.0 million (approximately S$2.8 million). The site has the potential to be redeveloped into an eight-storey residential development. This plot of 1,012 sqm freehold land is located on the main road of Pracharaj Sai 2 Road, which is commonly known as Bang Pho area. Bang Pho is one of the outer metropolitan districts of Bangkok, which is densely populated with low and middle income local residents. This land plot is located about 100m from the Bang Pho BTS station, which is currently under construction and expected to run in 3 years’ time. As a result of the new BTS line, land prices along the main road would likely trend upwards. (Closing price: 0.405, -2.410%)

Perumahan SLG Central Sdn. Bhd., a subsidiary of Sim Lian Group, will launch 184 units of its KL Trillion luxury serviced residences along Jalan Tun Razak at the heart of the Kuala Lumpur city centre in Malaysia, on 5 July 2013. Sim Lian Group is an established Singapore-based property development, investment and construction company. KL Trillion is a freehold integrated development expected to be completed by end 2015, consisting of a 33-storey Grade A office block and two 39-storey blocks of serviced residences atop a five-level retail & office podium, and residential parking space. The serviced residences, comprising a total of 368 units, will be launched in phases. (Closing price: 0.885, -)

MIDAS Holdings has secured a 44.3 million yuan (S$9.08 million) metro contract through its subsidiary, Jilin Midas Aluminium Industries Co Ltd. The Singapore-listed firm said yesterday that the contract was awarded by CNR Changchun Railway Vehicles Co Ltd for Changchun Metro Lines 1 and 2. Under the terms of the contract, Jilin Midas will supply aluminum alloy extrusion profiles for 44 train sets, or 264 train cars. Delivery is expected to take place from this year to 2015. The contract is expected to have a positive impact on the group's financial performance for the 2013 to 2015 financial years. The latest contract adds to the several rail contracts won by the group in the current quarter in China and Singapore. Earlier last month, the group announced that its joint venture, Nanjing SR Puzhen Rail Transport Co Ltd (NPRT), had secured a 1.26 billion yuan contract to supply 33 train sets, or 198 train cars, for Shenzhen Metro Line 3 project, with delivery slated from 2015 to 2016. (Closing price: 0.435, -2.247%)

KEPPEL Fels, Keppel Corporation's rig-building yard, has secured an order for a KFELS B Class jack-up rig valued at US$210 million from PV Drilling Overseas (PVDO), an entity majority-owned by PetroVietnam Drilling & Well Services Corporation. The high-specification rig is to be delivered in the first quarter of 2015. This deal lifts Keppel Offshore & Marine's order wins to date to US$2.81 billion. Keppel Corporation separately said it will own part of PVDO. Its wholly owned subsidiary Joy Pride Investments purchased a 35 per cent stake, or 350 ordinary shares, in PVDO from Singapore-listed Falcon Energy Group at a consideration of US$350 on July 2. PetroVietnam Drilling & Well Services (PV Drilling), a subsidiary of national oil company PetroVietnam, is PVDO's 55 per cent majority shareholder; Falcon Energy retains the remaining 10 per cent interest. Falcon Energy formed the PV Drilling Overseas joint venture entity with PetroVietnam Drilling & Well Services following a preliminary agreement in January. (Closing price: 10.36, -0.861%)

HAFARY Holdings has incorporated a special purpose vehicle, World Furnishing Hub Pte Ltd (WFHPL), to acquire a property at Sungei Kadut. Hafary Holding's wholly owned subsidiary Hafary Pte Ltd will have a 40 per cent stake in WFHPL, while Low See Ching (executive director and controlling shareholder of Hafary Holdings) and Ching Chiat Kwong (controlling shareholder) will each hold a 25 per cent stake. The remaining 10 per cent stake will be held by Sitra Agencies Pte Ltd, a wholly owned subsidiary of Sitra Holdings (International) Limited. Sitra Holdings is the vendor of the property - 18 Sungei Kadut Street 2 - which is located within the International Furniture Park. The property has a leasehold interest granted by the JTC for a term of 16 years from March 1, 2009. The proposed acquisition is conditional upon WFHPL obtaining the approval for the assignment of the existing leasehold interest in the property. (Closing price: 0.181, -2.688%)

ST AEROSPACE has inked a long-term agreement with UTC Aerospace Systems to provide maintenance, repair and overhaul (MRO) services for the nacelle systems of the Rolls-Royce Trent 1000 and General Electric GEnx engines used in Boeing's Dreamliner. The nacelle system is the external casing which houses the engine on an aircraft. Under the agreement, the aerospace arm of ST Engineering will be able to offer these services leveraging on UTC Aerospace's repair processes. ST Aerospace will invest in a range of repair and overhaul capabilities and maintain an inventory of aircraft components and parts to support Boeing 787 operators. "With a global MRO network and comprehensive capabilities, ST Aerospace looks forward to working closely with UTC Aerospace Systems to ensure the best and most reliable support for Boeing 787 operators worldwide," said Chang Cheow Teck, president of ST Aerospace. This is its second contract win in recent weeks from UTC Aerospace, a key supplier of components used in Boeing's 787 aircraft. That contract involved nose-to-tail support of other components manufactured by UTC Aerospace for the Dreamliner, including bleedless systems and liquid cooling components. (Closing price: 4.010,-2.670%)

Source: PhillipCapital Research - 4 Jul 2013