The continued strong foreign buying interest on the local market sent the benchmark index to another record high last week at 1711.29 (+0.29% WoW). Both our GROWTH and DIVIDEND YIELD portfolios continued to beat the market last week by 293-320bps (or 537-679bps on a YTD basis) while the THEMATIC portfolio underperformed the index for the first time since mid-March. Technically speaking, the FBMKLCI has shown early signs of an upside volatility breakout. While the index could potentially chart new highs, it could still be stuck in a consolidation mode this week as the GE13 polling day is approaching. Based on a TD Range projection, the index is likely to oscillate between 1705-1725 points. Strategy-wise, we continue to recommend investors to follow a “Buy on Weakness” strategy if the index dips below to our buying zone (at below 1,645 level). We prefer more exposure to the higher beta stocks to capitalise on any rebounds/rallies post the GE13 as well as to laggards that have been underperforming the FBMKLCI such as DIGI, YTL, KLK, TM and YTLPOWER.

A new record high in FBMKLCI. The continued foreign buying in both election stocks and laggard  lays sent the FBMKLCI to advance by +0.29 point WoW to close at 1711.29. In fact, the index managed to hit an all-time high of 1718.08 points on Friday’s morning section before profit taking kicked in. Despite the various uncertainties that still surround the upcoming GE, foreign funds have continued to increase their weightings in the local market last week even while local institution investors and retailers continued to remain conservative and lighten up their respective portfolios. The key leading index counters last week included stocks such as AMBANK (+3.5%), UMWH (+4.2%) and ASTRO (+2.8%).

GROWTH and DIVIDEND YIELD Portfolios leads the gains. Both the GROWTH and DIVIDEND YIELD portfolios have continued to outperform the FBMKLCI on a WoW basis by a range of 293-320 bps although the THEMATIC portfolio underperformed the benchmark index for the first time since mid-March (-0.96% WoW vs. +0.29% WoW gain in the FBMKLCI). Foreign buying in election stocks as well as laggards plays such as TENAGA and AMBANK continued to benefit our GROWTH and DIVIDEND YIELD Portfolios, which saw their WoW gains extended by +3.49% and +3.22%, bringing their YTD total returns to 7.53% and +8.95% respectively. On a YTD basis, the GROWTH and DIVIDEND YIELD portfolios have outperformed the benchmark index by 537 and 679bps respectively. Our THEMATIC portfolio has also outperformed the FBMKLCI on a YTD basis (+7.67% vs. +2.16%) despite its lacklustre performance last week.

Election and laggard plays continue to be in the limelight. The strong weekly performance in our GROWTH and DIVIDEND YIELD portfolios were mainly driven by TOMYPAK (+12% WoW) and HOVID (+4% WoW). The strong performance in the former was, we believe, due mainly to the better-than-expected earnings reported by its peers, thus drawing investors’ interest to the packaging sector. Our THEMATIC portfolio, meanwhile, was dragged down by the continued profit taking activities in PUNCAK after its share price recorded a strong +57.3% gain (to as high as RM1.92) since mid-February. During the week under review, we have added 30,000 HOVID shares to our GROWTH portfolio to lower the investment cost to RM0.245/share (from RM0.26/share previously). We also received RM285 (or 28.5 sen/share) in net dividends from our 1,000 MAYBANK share investment in the DIVIDEND YIELD portfolio. On top of that, we also added 1,500 AMBANK shares at RM6.72/share to our THEMATIC portfolio last Friday.

Election campaign fever continues. We believe that the market will be stuck in a consolidation mode this week despite it showing some early signs of an upside volatility breakout as the GE polling day is around the corner already. While the market could still inch up and maintain a feel-good factor for investors this week, its near-term upside could be capped at the 1,725 level based on a technical perspective. Nevertheless, should there be no major surprises in the upcoming GE results, the strong liquidity in the market, we believe, could see the FBMKLCI staging a re-rating post the GE. This could be further supported by the higher valuations given to companies by analysts as they start to roll over their valuation base year for these companies to CY14.

Source: Kenanga