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Sunday, October 3, 2010

Weekly Market Preview 04 October 2010

From the Chartroom

It ain’t over until it is over as our bullish stock market trend remains intact. In fact, we will only know where exactly the top will be on hindsight. So, with the momentum still riding high, our Malaysian bourse could scale greater heights in 4Q10. We consequently raise our technical target for the benchmark FBM KLCI to peak somewhere inside the 1,525-1,565 range, after reaching our initial forecast of 1,410-1,480 set at the beginning of this year.

3Q10 turned out to be the most profitable quarter so far this year. The FBM KLCI advanced 11.4% (versus +3.8% in 1Q and –0.5% in 2Q) to lift the year-to-date return to +15.0%, the fourth highest among the 11 Asian stock exchanges tracked by us. The big winners across the region were led by Indonesia (up 38.2% so far this year), Philippines (+34.3%) and Thailand (+32.8%) while the worst underperformers were Japan (- 11.2%), China shares listed in Hong Kong (-3.0%) and Taiwan (+0.6%). Meanwhile, key U.S. indices on Wall Street were marginally in the black (up between 2.3% and 4.4%) after nine months.

Quite evidently, foreign funds inflows have been the force behind our stock market rally. They were net buyers for four straight months since Jun, after adding a net amount of RM4.3b worth of Malaysia shares in Sep (more than the RM2.9b registered in Aug). For the whole third quarter, their net buying worked out to be RM9.5b (significantly more than the RM0.8b of net buying in 2Q10). In contrast, turning net sellers in 3Q10 were both the local institutions (minus RM8.1b vs. a positive RM1.2b in 2Q10) and local retail investors (minus RM1.0b vs. 2Q10’s minus RM1.2b).

A steady pipeline of news flows is in the works to push our local bourse even higher on rotational themes as we enter the last quarter of 2010. The line-up of events include:
  1. Action plans and policy liberalisations to boost the economic fundamentals when the Government announces the Budget 2011 (on 15 Oct) and the New Economic Model Part 2 (on 26 Oct). This could further strengthen the Ringgit, thus attracting more overseas funds to park their money in the country;
  2. New listings of big-cap companies, namely Malaysia Marine & Heavy Engineering Holdings (end-Oct) and Petronas Chemicals Group (by Dec), as well as probable sell-down of shareholdings in government-linked companies, both of which should whet investors’ appetite; and
  3. The progress of individual mega projects such as the MRT and LRT transportation networks, privatization of government land parcels for property developments etc. But this is not to say that there is no downside risk. Lingering in the horizon are clouds of adverse external developments.
Possible pitfalls that could derail the global equities from their upward trajectory include:
  1. a double-dip recession threat;
  2. spreading of sovereign debt crisis;
  3. wild swings in the currency markets;
  4. unstable commodity markets; and
  5. sudden withdrawals or contractions of liquidity around the world.

On the chart, our in-built trading strategy – a tool that generates buy signals based on predetermined conditions – has been tested and proven to be dependable thus far. Recall that this trading system is run on an embedded program that combines selected technical indicators and filters, with its reliability and validity back-tested using statistical technique. The decision rule says that the index would have to jump at least 10% to be counted as one profitable trade, or else it would be considered a false trigger if it slides 10% or more, whichever comes first, measured from the signal point.

In our 3Q10 quarterly technical write-up dated 28 Jun, we highlighted then the appearance of outstanding buy signals from No 47 to No 50, which implies that the FBM KLCI would at least ascend to between 1,377 and 1,418, should they eventually pass our trading rule by a markup of 10%. These goals were subsequently surpassed when the benchmark index hit a high of 1,479.59 on 17 Sep. With this, a total of 42 of the 50 buy signals (or an accuracy rate of 84%) that popped out between 2000 and 2010 has now satisfied our investment criteria, thus enhancing the predictability power of our trading system. While no new alert has emerged since buy signal No 50, our current readings of other technical indicators/chart patterns are telling us that more upside could be in store for our stock market.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Sunday, September 26, 2010

Weekly Market Preview 27 September 2010

From the Chartroom

A market correction appears to be in progress now. How low more can it go?

The bellwether FBM KLCI wanted to move higher last week, climbing in the initial days (to a peak of 1,479.59) before succumbing to selling pressures (and hit a low of 1,445.33) towards the end. It settled at 1,451.19 on Friday for a weekly decrease of 15.8-point or 1.1%. Falling in tandem during the week were the FBM 70 Index and the FBM ACE Index, down by 0.4% and 0.8%, respectively. Daily average trading volume was larger at 1.2b shares (versus 894.0m units a week ago) though average trading value came in lower at RM1.6b (from RM1.8b), as investors’ interest skewed to the small-mid cap companies.

With news flows anticipated to go light this week – no major events are spotted on our calendar – we reckon the mood will be to sell rather than buy equities following the recent winning streak. Routine reports on tap include:

(a) Gamuda’s latest quarterly financial result announcement scheduled on Tuesday; and
(b) the monthly banking statistical bulletin for Aug due on Thursday.

There may also be lesser tendency for window-dressing activity to prevail as we approach the end of 3Q10, given the buoyant market rally to-date (the FBM KLCI is now up 10.4% in the current quarter and 14.0% since the beginning of the year).

From a technical perspective, after touching and subsequently backed off from 1,480 thrice since two Fridays ago, the FBM KLCI is signaling that it could be about time to take a rest. After all, it had been climbing at a quick and steep pace, up in 13 of the past 16 weeks before last week’s decline. Even so, measuring from the highest point of 1,479.59 to the trough of 1,445.33, the fairly smallish percentage drop of 2.3% suggests that further downsides remain likely.

We have set our lines of defence for the FBM KLCI at 1,435 (first) and 1,415 (second) at the moment. Below this, a major support level is drawn at 1,395. They translate to probable pullbacks in the range of between 3% and 6% from the recent peak, which will then sit somewhere within the past market correction pattern since the current leg of rally began in late May this year (see chart next page).

Yet, this may not be the end of the 1½-year-old stock market uptrend. Until and unless a nasty surprise is unleashed to trigger a trend reversal, the positive momentum will probably carry the benchmark index to fresh highs beyond the ongoing consolidation process. On the chart, the FBM KLCI will be eyeing to overcome 1,465 (immediate resistance) before testing 1,495 (next resistance) when it eventually resumes its way up.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Monday, September 20, 2010

Weekly Market Preview 20 September 2010

From the Chartroom

Even after advancing to a series of higher highs lately, more upsides could still be in store for the FBM KLCI. The vital question to ask now is whether the bellwether would climb further without pausing or an overdue pullback is in the horizon already.

The bulls were still working diligently in the recent holiday-shortened week. The benchmark FBM KLCI made a weekly increase of 29.2-point or 2.0% to settle at 1,466.97 last Friday. Similar positive performance was also registered by the FBM 70 Index (+2.7%) and the FBM ACE Index (+2.6%) through the week. Trading activity came in at a daily average of 894.0m shares valued at RM1.8b, versus 610.4m units worth RM1.1b the week before.

If the falling US$ (and the strengthening Ringgit) is the main cause that has been motivating foreign funds to put their money in Malaysia equities since Jun this year, then investors would want to know the outcome of the U.S. Federal Open Market Committee meeting scheduled on Tuesday (21 Sep). While the U.S. policymakers are widely anticipated to keep the federal funds rate at near zero level for now, the key takeaways from the language of its accompanying statement – on the U.S. economic conditions, inflation outlook, other financial developments etc – are likely to reaffirm (or alter) the consensus opinion on interest rate / currency markets expectations.

Already, the sliding US$ is increasingly seen as a worry for some major exporting countries. Just last week, Japan intervened for the first time since 2004, buying the greenback and selling the Yen in an effort to reverse or halt the decline. From the perspective of equities investors, the currency swings (which can cut both ways) because of policy interventions and regulatory risks will be one leading force that could shift dramatically global funds flows ahead. On the home front, we will get to hear a lot of publicity on the government’s Economic Transformation Programme (ETP) and its components of National Key Economic Areas (NKEA), the details of which will be displayed for public viewing on Tuesday. While plenty of information – e.g. a list of projects to be rolled out, the investment sums involved, the targets to be achieved etc – will be made available, the focus will fall on sectors (like oil & gas, energy, infrastructure/construction and financial services) with immediate probable implications on our stock market.

There may also be a bit more interest on individual companies – such as Berjaya Sports Toto (on Monday) and SP Setia (on Thursday) – that are due to release their latest quarterly financial result announcements. Following the steep ascend in the FBM KLCI – up in 13 of the past 16 weeks for a cumulative increase of 15.6% with the deepest weekly drop amounted to a mere 1.4% – we reckon it is just a matter of time that an intermittent market correction would set in. What remains uncertain at this stage is whether it would come sooner or later.

After reaching a fresh high of 1,479.59 – a level last seen in mid-Jan 08 – our Malaysian bourse should be vulnerable to profit-taking pressures ahead. The first two resistance-turned-support lines for the FBM KLCI are drawn at 1,465 and 1,435, respectively. Yet, the FBM KLCI could scale greater heights on rotational plays eventually. As the index will likely extend its primary uptrend from a trough of 836.51 in mid-Mar 09, possibly recovering towards an all-time peak of
1,524.69 (in mid-Jan 08), we have pegged the resistance targets at 1,490 (immediate) and 1,520 (next) for the FBM KLCI to overcome along the way.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Sunday, September 5, 2010

Weekly Market Preview 06 September 2010

From the Chartroom
Malaysia’s bellwether FBM KLCI is on the roll, racing ahead to surpass our resistance targets sooner than forecasted. What next?

Up on all days except Friday, the key market barometer jumped 24.6-point or 1.7% during the week to finish at 1,435.67. Rising in tandem were the FBM 70 Index (+2.5%) and the FBM ACE Index (+0.8%). As big-caps garnered more interest, daily average activity increased to 928.5m shares (from 803.9m units) in volume and RM1.8b (RM1.4b previously) in value.

Foreign funds have been coming to Malaysia. According to Bursa Malaysia’s record published last week, they were net buyers of RM2.9b worth of Malaysia equities in Aug. This marks the third straight month of net buying by foreigners (+RM1.8b in Jun; +RM2.3b in Jul), although their level of trading participation was only marginally higher at 28.4% of value traded (versus 27.5% in Jul).

Aug is also the third month in a row when both local institutional and retail investors sold more shares than they bought, with net figures of –RM2.2b and –RM0.5b, respectively. In comparison, net selling by:
(a) local institutions stood at RM1.2b in Jun and RM1.6b in Jul; and
(b) local retail investors was RM0.5b in Jun and RM0.4b in Jul.

In terms of trading value breakdown for last month, local institutions accounted for 35.4%
(36.8% in Jun) while local retailers made up 21.0% (20.2% in Jun). Overall trading interest, nonetheless, may wane a bit in this coming holiday-shortened fortnight. Just one key economic report is on tap: the index of industrial production (IPI) for Jul due on Thursday (9 Sep).
Separately, the plantation statistics (on production, exports, inventory, etc) for Aug are scheduled for release next Wednesday (15 Sep).

As investors get into the holiday mood, our domestic stock exchange may take a rest too. Against a quieter backdrop, a consolidation pattern could be approaching. After all, the benchmark FBM KLCI – following an almost uninterrupted climb – has chalked up a cumulative gain of 86.3-point or 6.4% in a short space of 3½ weeks, now standing at just 5.8% below its all-time high of 1,524.69 (achieved in mid-Jan 08).

If an overdue market correction does set in, then we reckon the bellwether will likely find its first and second support lines at 1,415 and 1,395, respectively. Measured from the index high of 1,441.80 (reached last Thursday), this represents to a probable 2%-3% drop.

On the upside, the FBM KLCI remains on track to advance to higher highs since the market rally began in mid-Mar last year. The resistance targets to be overcome are seen at 1,435 (immediate) and 1,465 (next). The momentum could eventually carry the FBM KLCI – after hitting the mid-point range last week – further into our 2010 peak projection band of between 1,410 and 1,480.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Sunday, August 29, 2010

Weekly Market Preview 30 August 2010

From the Chartroom
The benchmark FBM KLCI appears to be cruising on a course of its own, even as profit-taking activity is prevalent in the broad market. Whether the pace will last remains our focus at this juncture. Riding on the upward momentum, the bellwether added 16.0-point or 1.2% through the week despite market breadth coming in negative on four days (and quite even for the remaining one day).

The FBM KLCI consequently closed higher at 1,411.05 on Friday, while both the FBM 70 Index (-1.8%) and the FBM ACE Index (-3.1%) recorded weekly losses. Also, fewer shares changed hands during the week with daily volume averaging 803.9m shares (from 980.4m units) valued at RM1.4b (RM1.5b previously). Our piece last week talked about the two current drivers of Malaysia equities performance. There will be follow-up developments on both fronts this week.
First, the appeal of the Ringgit as an investment currency may (or may not) be enhanced depending on the outcome of Bank Negara Malaysia (BNM)’s monetary policy committee meeting scheduled on Thursday (2 Sep). After lifting the overnight policy rate thrice (by a total of 0.75%) in the preceding three sessions, the street remains divided on whether the policymakers would stand pat or tighten further. The currency outlook could then shape foreign investors’ appetite towards Ringgit-denominated assets like stocks.

Secondly, research houses in town will be tabulating the corporate earnings scorecards when the Apr – Jun quarterly reporting season comes to an end today. On our side, among the listed companies inside our coverage that have made their announcements so far, 60% met expectations while 23% beat estimates and the balance 17% were below par. Consequently, we will likely bump up slightly our universe earnings growth projections for 2010 (from 18% a quarter ago to roughly 22%).

Meanwhile, the external trade statistics – which capture Malaysia’s export and import performance – for Jul is due to be out on Thursday. Technically speaking, we prefer to see a healthy correction in the FBM KLCI first which could then pave the way for a sustained run-up thereafter. The key market barometer remains in an overbought area after climbing 162.1-point or 13.0% in three months, standing now at its highest level since Feb 08.

Thus, it may be just a matter of time before the benchmark index tumbles on intermittent selling pressures. To cushion any probable market declines, we have set our first and second support zones at 1,395 and 1,375, respectively. Else, if the existing momentum carries on uninterrupted and lifts the FBM KLCI to even higher grounds ahead, then it is poised to challenge the next two resistance targets of 1,415 and 1,435 sooner than anticipated.

On the chart, the FBM KLCI – which reached a high of 1,415.28 last week – has entered our 2010 peak projection range of between 1,410 and 1,480. More upside could be on the way as we reiterate our bullish technical stance, notwithstanding possible transitory pullbacks. Partly backing this view is an ascending triangle pattern (first highlighted in our report dated 2 Aug, reproduced in the chart overleaf), which has guided an index objective of 1,437 by measuring a vertical distance of the triangle height from the breakout point.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Wednesday, August 25, 2010

HWangDBS - Highlights

Axiata Group (RM4.42; Buy; Price Target: RM4.95; AXIATA MK)
Broad-based improvement
• Annualized core 1H10 result was within our estimate but ahead of consensus’
• Nudged up FY10F-11F earnings by 2%-3%; raised SOP-TP to RM4.95, maintain Buy
• Applied new dividend policy (30% payout) to FY10F NI, raised FY11F payout to 30% (from 10%)

PPB Group (RM16.90; Hold; Price Target: RM16.80; PEP MK)
Limited catalysts ahead
• 2Q10 below, sweetener was DPS of 70 sen
• Spiraling wheat prices a dampener
• Hold, cut SOP-TP to RM16.80

IJM Corp (RM4.95; Buy; Price Target: RM6.20; IJM MK) Accelerating earnings momentum
• Good quarter, property was star performer
• Construction earnings now at inflection point
• Buy, SOP-derived TP of RM6.20

Parkson Holdings (RM5.48; Buy; Price Target: RM6.80;PKS MK) Building on positive momentum
• Sales momentum spills over to Sep quarter
• Earnings growth driven by SSS growth and new stores
• Reaffirm Buy call with RNAV-derived TP of RM6.80 (from RM7.00)

Alam Maritim (RM1.12; Buy; Price Target: RM1.40; AMRB MK)
Temporary rough patch
• Lower fleet utilisation and delay in vessels delivery will drag down near term earnings
• Cut earnings after revising assumptions; job orders expected to improve in 2H10
• Still cheap; maintain Buy with RM 1.40 TP

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Monday, August 16, 2010

Weekly Market Preview 16 August 2010

From the Chartroom
Our Malaysian bourse could have hit a near term bottom already. On the other hand, any upward movement will probably be gradual. The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) touched a low of 1,342.07 on Thursday before erasing all the initial losses to recover to where it was two Fridays ago. Losing ground through the week though were the FBM 70 Index (-0.6%) and the FBM ACE Index (-0.4%). Amid the profit-taking mood, daily average volume softened to 787.7m shares (from 947.9m units) valued at RM1.1b (versus RM1.3b).

Asian equity markets ran into headwinds that were blowing out from the U.S. The major losers in the region last week were China shares listed in Hong Kong (-4.3%), Japan (-4.0%) and Hong Kong (-2.8%). Key bellwethers on Wall Street also succumbed to selling pressures, falling between 3.3% and 5.0% week-onweek. Essentially, sentiment was hurt by worries that the world’s biggest economy might be stumbling, a scenario that has also been acknowledged by the Federal Reserve when it said last week the pace of the economic recovery is anticipated to be more modest in the near term.

What about the economic condition back home? It should be reasonably solid judging by the healthy statistics in recent months:
  1. The external trade data showed an annual increase of 22% for exports and 30% for imports in the Apr – Jun period, translating to a quarterly trade surplus of RM23.3b; and
  2. The Index of Industrial Production (IPI) was up 10.8% year-on-year between Apr to Jun.

This then implies Malaysia’s Gross Domestic Product (GDP) performance would come in strong in 2Q10 (after registering +10.1% in 1Q) when the report is released on Wednesday (18 Aug), which could also touch on the future expectations. Meanwhile, we are still waiting for the government to make public the second part of Malaysia’s New Economic Model (NEM) – a blueprint that is designed to elevate our country’s economic status to a highincome nation – which was previously scheduled to be unveiled in the first half of Aug.

On the corporate front, the Apr – Jun quarterly reporting season is expected to intensify in the week ahead. Among the listed companies tentatively due to announce their financial results include Malaysian Airline System (on Monday), KL Kepong (Wednesday), MISC (Thursday), WCT (Thursday) and Maybank (Friday). Just to put things in perspective, the FBM KLCI has advanced from a trough of 1,243.86 (in late May) to a peak of 1,370.52 (in early Aug), up 126.7-point or 10.2%. Thereafter, it slid to as low as 1,342.07 last Thursday, representing a decrease of 28.5-point or 2.1%. The key market barometer then recovered swiftly
to settle at 1,360.15 on Friday. Has the market correction run its course? It appears to be so in our eyes, at least for the time being. The FBM KLCI has found support by bouncing up thrice from a minor upward sloping trend line (see chart overleaf). If this pattern persists, then we reckon the index is likely to plot higher lows ahead. Further down, we have drawn support levels at 1,340 (first) and 1,305 (second).

Is our local bourse going to resume its uptrend? Probably yes though it may not be right away. The consolidation process could carry on – by swinging sideways with a positive bias – as it takes time for the market to absorb the profit-taking activity. Our immediate and next resistance targets for the FBM KLCI to overcome are set at 1,375 and 1,395, respectively.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

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