General elections fears (see Figure 1). It was speculated that the parliament could be dissolved in end-February and the GE would be held in March 2013. Should this be the case, we are not surprised to see the sell-down as historically, GEs typically bring uncertainties to the market. 

Broadly in line with our market view nonetheless (see Figure 2). While the market has declined faster and fiercer than expected, the downside risk had been expected by us. Recall that we had mentioned in our 1Q13/2013 Investment Strategy Report dated 18/12/12 that there were a number of negative factors that could potentially cap the upside potential for the market. For instance, we had highlighted that the low volatility condition is not sustainable for long period of time. This was because low volatility would translate into a low risk premium and hence high valuation, which were not the case then theoretically speaking. We had also cautioned investors that any hiccups/uncertainties in the market could trigger a volatility breakout. True enough, with the widespread GE rumour now, the historical volatility has surged strongly, implying a more volatile market condition and a higher risk of further corrections.

Foreigners have turned net sellers (see Figure 3)? Surprisingly, based on Bursa Trade statistics, foreigners had net sold only RM1.8m worth of equity even with this sell-down. This is against market expectation that foreign investors have already started to unwind their positions to reduce their exposure in equity owing to the so-called political risk.

Where is the downside (see Figure 4-6)? Based on our technical reading, we believe that the immediate floor is at the 1,610/1,590 levels and 1,550 next. This is somewhat in line with the projected downside support levels derived from the respective index constituents. We believe that based on those constituents' 1^st  and 2^nd  support levels, the FBMKLCI should see supports at 1,611 and 1,574 next. This is also somewhat in line with our floor estimates as well. Recall that we had earlier pegged the floor valuation at 1,560 based on 14.0x FY13 PER or at a -0.5SD. The above technical view also supports our B.O.W. investment strategy of below 1,610.

What stocks to buy (see Figure 7-8)? In view of the GE concern and uncertainties, we believe the mainstream investment choices are still the names with high-dividend yield and those that have consistently delivered positive total returns. In Figure 7, we highlighted the Top-ranked Consistent Performers based on a sample of the Top 500 Largest Capitalisation Stocks. In Figure 8, we listed down stocks with December Financial Year End that are likely to pay out dividends from January to May 2013.

Source: Kenanga