Market Strategy - Sweet 19 for Europe; Time to look on the bright side. In the 19th summit since the Europe debt implosion, the leaders of the Eurozone agreed  that  the  bailout  funds  meant  to  save  ailing  governments  can  be channeled  directly  to  the  banks.  This  move  can  essentially  break  the  vicious cycle of bank bailouts stifling the struggling economies. This is a breakthrough, according  to  the  European  Council  president  Herman  Van  Rompuy.  And  the markets seem to agree. On the bond side, yields on Spain's 10-year bond fell 0.32 ppt to 6.58% while the Italian one was off 0.14 ppt to 5.94. Both countries were flirting  with the  unsustainable  7%-level  in recent weeks. As for the stock markets,  both  Spain  and  Italy  surged  3%  last  Friday,  while  the  major  US indices shot up 2-3%.

There  will  be  some  hiccups  along  the  way,  but  the  direction  is  clear.  The  Euro  is  here  to stay,  as  shown  by  the  solidarity  of  the  27  leaders  of  the  EU  backing  the  'four  building blocks' of a tighter union, including debt-sharing in the form of a jointly issued Eurobonds.  

I turned defensive at the start of the second quarter as the crisis seems to be spiraling out of hand. With the resolution of the Europe issue (at least for now), there is one other major sticking  point  -  slowdown  in  China.  The  recent  economic  data  from  the  world's  second largest economy is by no means consoling. China's factory downturn worsened in June as the  purchasing  managers'  index  (PMI),  a  key  activity  index,  hit  a  seven-month  low.  The recent weakness should push the Chinese government to accelerate policy easing to kick-start the recovery. This will most definitely lift market sentiments in the region.  

Given the above, I believe it is now a good time to re-enter the market. The bellwether sectors like Financials and Properties will once again lead the pack. As for the small caps, sectors to look out for include Offshore & Marine (Ezion, STX OSV) and Consumer (OSIM). Notes from OSK's  ASEAN+HK Conference; Here are excerpts from some of the selected SGX-listed companies which participated in our bi-annual event:

My small cap portfolio did well last week, shooting up by 4.7% on the back of stellar gains by SBI  Offshore  (+18.2%),  Elite  KSB  (+5.8%)  and  Lian  Beng  (+5.6%).  STI  and  FSTS  gained 1.8% and 2.4% respectively in the past week.

Given my switch from defensive mode to a more aggressive one, I will be selling out Frasers Centrepoint  Trust  (110,000  shares  at  S$1.69)  to  switch  to  OSIM  (160,000  shares  at S$1.205). I believe that OSIM is one of the best regional consumer play in Singapore, with an  enviable  stable  of  strong  brands,  including  OSIM  (massage  chairs),  TWC  (high-end  tea retailer), as well as GNC and RichLife (nutraceuticals).  Armed with a cash hoard of close to S$200m, future earnings may be boosted by M&As. We have a BUY on the stock with a TP of S$1.62, based on 15x FY12 earnings. 

Source: OSK