Despite elements of seasonality in the just concluded reporting season, there was a greater number of earnings misses among the big caps, with the upgrade to downgrade ratio (UDR)  falling to 0.5x from the 4Q2011 high of 0.9x. There were major disappointments in the steel, plantation and oil & gas sectors but positive surprises in financials/insurers. Given the potential bugbears in the form of (i) the upcoming makeor-break elections for Greece slated for 17 June, (ii) possibility of a Spain bailout (iii) FOMC's meeting on 19-20 June, and (iv) the technical violation of the US markets last Friday, there are enough reasons for investors to stay defensive while positioning for rebound trades in the event of a sharp pullback. The upcoming listing of 2 major IPOs (Gas Malaysia and Felda Global Ventures) should provide near-term catalysts and support for the FBM KLCI. We like the banking, consumer, construction and oil & gas sectors.

Weaker sentiment. The FBM KLCI shed 7.08 pts to 1,573.59 on Friday. News over the weekend included:  Petronas Dagangan Bhd has entered into 6  conditional share sale and purchase agreements for the proposed acquisitions of downstream companies of Petronas and its subsidiaries in the Philippines, Vietnam, Thailand and Malaysia for about USD62m (RM197.3m) cash, AirAsia Bhd is mulling over the possibility of entering India as the government there is considering allowing foreign airlines to acquire stakes in ailing Indian carriers and Glomac Bhd is buying 191.75 acres of agricultural land in Dengkil, Selangor for RM66.8m or RM8/sq ft from Lee Chin Cheng Dengkil Oil Palm Plantations SB.  Meanwhile, loan demand from both businesses and households was sustained in April 2012 although household loans grew at a slower pace and MIMB Investment Bank Bhd is now 100%-subsidiary of Hong Leong Capital Bhd. On the global front, both the US markets and crude oil prices closed lower on Friday. The  price of  crude oil  declined by USD3.30 to close at SD83.23/barrel.

The Dow Jones Industrial Average declined 2.2%  after the Labor Department said payrolls climbed by 69,000 last month, less than the most-pessimistic forecast in a Bloomberg News survey of 87 economists. The unemployment rate increased to 8.2% from 8.1% in April. More than USD1.63trn has been erased from US equity values and USD5.92trn from world stocks this quarter as concern Greece will leave the euro and slowing Chinese manufacturing pushed government bond yields in the US and Germany to record lows. (Bloomberg)

KPJ Healthcare Bhd's unit Pharmacy Alliance SB will acquire a piece of freehold property in Petaling, Selangor, for RM14.2m from Lewre International SB. In an exchange filing last Friday, it said the property, located on land measuring 5,223 sq m, is strategic to the group's plans to develop and expand its pharmaceutical business. (Malaysian Reserve)

Exclusive distributor of Toyota vehicles UMW Toyota SB said the Japanese carmaker is mulling the idea of assembling more models, in addition to the Avanza, Vios and the recently-launched all-new Camry, at its plant in Malaysia. UMW Toyota Motor president Ismet Suki said the plan will, however, depend on the potential market volume and the new National Automotive Policy (NAP). (Malaysian Reserve)

The Indonesian central bank's proposal to cap single ownership at 40% for new investment will work in favour of CIMB Group Holdings Bhd and Malayan Banking Bhd (Maybank) according to analysts. On the other hand, analysts believe the imposition of bank ownership cap on new investments could deter RHB Capital Bhd and Affin Holdings Bhd from venturing into Indonesia. It is understood that banks with a high good corporate governance score would not be subjected to changes in the ownership structure. (Financial Daily)

AirAsia Bhd is accelerating its search for a CEO to oversee its Malaysian operations. Four names are being considered for the position, said persons familiar with the matter. This comes as group CEO Tan Sri Tony Fernandes relocates his office to Jakarta, which is the regional headquarters, in an effort to boost AirAsia's growth in Indonesia and the region. (Financial Daily)

Malaysia's insurance industry may be undergoing a consolidation, but there is still room for new players in the market, says Manulife Financial executive vice-president and general manager for South East Asia, Philip Hampden-Smith. He likened the consolidation the local insurance market is undergoing to the same development the banking sector went through some years ago. (Financial Daily)

China's non-manufacturing industries expanded at the slowest pace in more than a year, as export orders declined and weakness in real estate countered strength in retailing and leasing, an official survey indicated. The purchasing managers' index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said. That's the lowest reading since March 2011 when the federation started seasonally adjusting the data. The report adds to evidence of slower growth in the world's second-biggest economy as Europe's debt crisis crimps overseas demand and government curbs on real estate feed through to more industries. (Bloomberg)

Japanese Prime Minister Yoshihiko Noda will reshuffle the Cabinet today in an effort to win opposition backing for doubling the consumption tax, after his bid to heal a breach in the ruling party failed. 'I'll map out the scale of Cabinet changes,' Noda said. The prime minister may bow to opposition pressure to fire Transport Minister Takeshi Maeda and Defense Minister Naoki Tanaka, who were censured by parliament's upper house in April. The premier said he was unable yesterday, for the second time in a week, to persuade ruling party powerbroker Ichiro Ozawa to drop his opposition to a tax increase, hindering efforts to pay for rising welfare costs. Ozawa's stance threatens to widen a rift in the Democratic Party of Japan three years after it ousted the Liberal Democratic Party from half a century of rule. Noda has staked his career on reaching a deal with the opposition to double the 5% tax and address a debt burden that Fitch Ratings cited in cutting Japan's sovereign credit rating. (Bloomberg)

Spanish Prime Minister Mariano Rajoy said European leaders should reinforce efforts to protect euro-area banks, ratcheting up pressure on German Chancellor Angela Merkel to back new ideas for a resolution of the debt crisis. With markets bracing for further deterioration in Spain's finance sector and a possible Greek departure from the 17-member euro area, Rajoy on 2 June added his voice to calls for a more robust 'banking union' in Europe, lending his support for a centralized system to re-capitalize lenders. On the same day, Merkel toughened her opposition to euro-area debt sharing, telling members of her party in Berlin that 'under no circumstances' would she agree to German-backed euro bonds. 'The EU needs to reinforce its common institutional architecture so that investors regain confidence in the single currency,' Rajoy said in the Spanish coastal town of Sitges near Barcelona. 'Spain will emerge from the storm through its own efforts and with the support of our European partners.' (Bloomberg)

The US labor market stumbled in May as employers added the fewest workers in a year and the unemployment rate rose, dealing a blow to President Barack Obama's re-election bid and raising the odds the Federal Reserve will take steps to boost growth. Payrolls climbed by 69,000 last month, less than the most- pessimistic forecast in a Bloomberg News survey, after a revised 77,000 gain in April that was smaller than initially estimated, Labor Department figures showed. The median projection called for a 150,000 May advance. The jobless rate rose to 8.2% from 8.1%. The Dow Jones Industrial Average wiped out its 2012 advance, the yield on the benchmark 10-year Treasury note fell below 1.5% for the first time and commodity prices slumped. The labor data reinforced concern that the global economy is heading for a third mid-year setback. (Bloomberg)