The strong foreign buying interest on the local market sent the benchmark index to a record high last week. In fact, the FBMKLCI managed to hit an all-time high of 1716.47 points in the Friday morning session before profit taking kicked in and closed at 1698.53 (+0.59% WoW) for the day. All our portfolios continued to beat the market last week by 6-96bps, or 375-798bps on a YTD basis. Moving forward, we believe that election plays will continue to be in the limelight while the market may likely consolidate following its decisive breakout from the psychological 1700 level. In view of the excess liquidity in the market, we are downplaying our “Sell on Strength” strategy. In fact, we would recommend investors to adopt 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 in capitalising on any rebounds/rallies post-GE as well as to the laggards that have underperformed the FBMKLCI.

A new record high in FBMKLCI. The 13th general election (GE) nomination and polling dates were finally announced by the Election Commission on last Wednesday, which helped the FBMKLCI to advance by 0.59% WoW to close at 1698.53. In fact, the index managed to hit an all-time high of 1716.47 points in the Friday 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 their respective portfolios. The key leading index counters in the week were TENAGA (+2.1%), PCHEM (+2.7%) and Maxis (+3.2%). On the US front, although the technical indicators have started approaching the overbought territory, the DOW was still well supported by encouraging economic data.

THEMATIC Portfolio leads the gains. All our three portfolios continued to outperform the FBMKLCI on a WoW basis by a 6-97bps range. Foreign buying in election plays, such as TENAGA and PUNCAK, continued to benefit our THEMATIC Portfolio, which saw its WoW gain extended by +1.56% or a total of RM1,300 unrealised profit, making it the top performer last week. This brought its YTD total return to RM7,491 or 8.99%. Likewise, the GROWTH Portfolio reported a +0.9% WoW gain or RM600, bringing its YTD total return to RM3,164 or +4.76%. Meanwhile, our DIVIDEND YIELD portfolio gained RM350 or +0.65% WoW, bringing its total YTD return to RM2,909 (+5.42%) as compared to the benchmark index total YTD return of 1.01%

Election plays continue to be in the limelight. On the overall, the stocks in our portfolios have performed fairly well with election plays, PUNCAK and TENAGA leading the gainers list. PUNCAK’s share price has surged by 47.9% YTD while TENAGA advanced by 11.1%. The former’s rise was mainly boosted by privatisation talks while the latter was benefitting from a potential upcoming tariff review. Meanwhile, we have taken profit on our 800 GAB shares that were invested in our DIVIDEND YIELD portfolio last week after the stock recorded a decent total return of 10.7%. At our sold price of RM17.96, GAB was trading at 24.9x FY13 PER, which we deemed to be expensive when compared to the group’s 3-year average PER of 15.3x as well as its closest competitor – Carlsberg’s 3-year average PER of 14.1x.

Market is likely to consolidate this week. Following its decisive breakout from the psychological 1700 level, we believe that the FBMKLCI is likely to consolidate this week before retesting its intraday high of 1,716.47. In view of the current strong Ringgit as well as liquidity in the banking system, money market and debt market, we are downplaying our “Sell on Strength” (at above 1,695 point) strategy. In fact, we would recommend investors to adopt a “Buy on Weakness” strategy if the index dips to our current buy weakness zone (below 1645 points). Meanwhile, we prefer more exposure to the higher beta stocks in capitalising on any rebounds/rallies post-GE such as in the sectors of: 1) banking, 2) non-bank financials, 3) construction & property and, 4) oil & gas. Investors may focus on the laggards that have underperformed the FBMKLCI as well such as YTL, DIGI, KLK, TM, AMBANK and IOI.

Source: Kenanga