Building materials (Underweight)

Mixed prospects

'''' Despite the recent uptick in regional steel prices, we continue to advocate our bearish view on both demand and prices for steel products in the region, underpinned by:

1.'''' Weak near-term demand prospects for steel products in China, which would continue to have spillover effects on steel demand and prices in the region;

2.'''' Still-high steel inventory in China, indicating that stock replenishing activities will remain subdued; and

3.'''' Last but not least, the recent increase in iron ore prices (arising from weather constraint) that may further cap margins of steel producers.

'''' Relative to the steel sub-sector, we are more bullish on demand prospects of the cement sub-sector, as it is the largest beneficiary from the implementation of ETP projects.

'''' We are maintaining our Underweight rating on the overall building materials sector, given our less optimistic view on the steel sub-sector's near-term outlook. Between the steel and cement sub-sectors, we are of the view that cement players will likely enjoy better fundamentals.

''

Moderation in 4Q 2011 GDP Growth

'''' Real GDP growth moderated to 5.2% yoy in 4Q (3Q: +5.8% yoy), affected mainly by slower expansion in the services and agriculture sectors. On the demand side, shrinking net exports and more moderate consumer spending contributed to the slower GDP expansion.

'''' Growth in the services sector eased to 6.4% yoy (3Q: +7.0% yoy) affected mainly by slowdown in real estate & business activities (+2.3% yoy; +6.8% yoy), in line the less buoyant property and stock market activities in 4Q.

'''' Construction growth more than doubled to 6.4% yoy (3Q: +3.0%) led mainly by residential and civil engineering.

'''' Domestic demand expanded at a faster pace of 10.5% yoy (3Q: +9.0%) with stronger expansion in public consumption and gross fixed capital formation.

'''' We retain our GDP growth forecast of 4.5% for 2012, with softer manufacturing growth cushioned by stronger construction activities and resilient consumer spending.

'''' We reiterate our view that BNM will hold the OPR steady at 3.00% until end-2012 on resilient growth outlook with sticky inflation.

''

KLCI: Crucial 1550 support''

'''' Following overnight Dow's fall, the KLCI is likely to continue its consolidation for a while. Immediate supports are 7-d SMA (1558), followed by 10-d SMA (1548). A breakdown below 10-d SMA would likely confirm a reversal and send the index back towards 1534 (mid Bollinger band) and 1527 (30-d SMA).

''

Dow: Uptrend is losing steam''''''

'''' Technical indicators are weakening amid a rising wedge pattern.

'''' The rising wedge pattern is characterized higher highs and higher lows with a contracting range, signalling an uptrend could end and a reversal pattern is in the pipeline.

'''' A breakdown below uptrend line support near 30-d SMA (12658) will spur more downside towards lower Bollinger band (12582) and 50-d SMA (12434). More solid support is near 100-d SMA at 12015.

'''' Resistance levels are situated at 10-d SMA (12840), 12929 and 13k psychological barrier.''