The local market witnessed a volatile trading session last week after the PM dissolved Parliament on Wednesday. In contrast to the local funds that have continued to stay on the sidelines, foreign investors continued to pick up value heavyweights while election plays were also in the spotlight. Last week, all our portfolios beat the FBMKLCI by 27-211bps on a WoW basis, or 343-700bps on a YTD basis. The THEMATIC portfolio, which we have positioned on some election plays like TENAGA and PUNCAK, was the best performer with a 3.13% WoW gain, followed by the GROWTH portfolio (+1.59% WoW) and DIVIDEND YIELD portfolio (+1.29% WoW). This week, the FBMKLCI is likely to be capped at 1,700, technically speaking, and we expect the market to trade in a tight range. We maintain our investment strategy to “Buy on Weakness” below the 1,600 level for the index or to “Sell on Strength” above 1,695. We also prefer more exposures to higher beta stocks from now onwards to capitalise on any rebounds/rallies post-GE as well as on laggards that have underperformed the FBMKLCI.

A roller-coaster week. The PM finally dissolved the Parliament last Wednesday, which put the local market into a roller-coaster ride last week. On the day of the announcement, the FBMKLCI index fell to an intraday low of 1,632.28 from the day’s high of 1,692.85 as local funds and retailers sold on the news. However, the benchmark index was able to close at 1,685.40 as foreign funds snapped up election stock plays such as TENAGA. The key index rose 1.02% or added 17.02 points to close at 1,688.65 on Friday, mainly driven by the heavyweights such as MAYBANK (+3.7%), TENAGA (+4.2%) and IOICORP (+2.6%). On the other hand, some of the small oil & gas stocks seemed to be overbought such as FAVCO (+36.0%) and UZMA (+10.0%). On the US front, although its technical indicators showed weakening signs, the DOW was still well supported by some encouraging economic data.

The THEMATIC portfolio reclaims its top gainer position. All our three portfolios outperformed the FBMKLCI by 343-700bps last week on a WoW basis. The foreign buying in election stock plays such as TENAGA benefited the THEMATIC portfolio, which saw its WoW gain extended by 3.13% or a total of RM2,605 in unrealised profit, making it the top performer last week. This brought its overall YTD total unrealised profit to RM6,191 or a rise of 7.43%. Likewise, the GROWTH portfolio reported a 1.59% WoW gain or RM1,055, which brought up its YTD unrealised profit to RM2,564 or up by 3.86%. The previous week’s top gainer, the DIVIDEND YIELD portfolio, came in last for the week with a 1.29% WoW gain or RM862, raising its YTD total unrealised profit to RM2,591 or up by 3.88%. As for the FBMKLCI, it returned to profitability for the year with a total YTD return of +0.43% after adding +1.02% in gains for the week.

Election plays led the gains. On the overall, the stocks in our portfolios performed fairly well with election play, TENAGA leading the gainer list. The integrated utility contributed RM600 in unrealised profit each to the THEMATIC and GROWTH portfolios, which have 2,000 shares of the stock each. TENAGA, which is one of our TOP PICKs for 2Q13, is clearly an election play since a tariff review is imminence post-GE13. The records showed that in the past four tariff reviews, the share price of TENAGA had soared 3%-9% immediately the day after the announcement, and to as high as 8%-10% within a month. Elsewhere, the GE water play, PUNCAK (+11.9%) was also in the limelight. However, GAB (-2.0%) continued to face selling pressure for the third week after its solid 7-week run. Nonetheless, the DIVIDEND YIELD portfolio still posted a YTD unrealised profit in the stock of RM1,280.

Market to trade in a tight range this week. As the country is now entering the election phase, the local market is expected to trade in a tight range with an upward bias. Technically, there is strong resistance at the 1,700 level, where gains are likely to be capped here. However, should it breach this psychological level, the next resistant level is seen at 1,726. We are maintaining our investment strategy in this uncertain time i.e. to “Buy on Weakness” at below the 1,600 level or to “Sell on Strength” at above 1,965. We also prefer more exposures to higher beta stocks from now onwards to capitalise on any rebounds/rallies post-GE in sectors such as: 1) banking, 2) non-bank financials, 3) construction & property and 4) oil & gas. Investors may focus on the laggards as well that have underperformed the FBMKLCI such as DIGI, DRBHICOM, HLBANK, PCHEM, SUPERMX, DIALOG and AFG.

Source: Kenanga