The global equity markets sell-off last week was mainly triggered by a few factors such as: 1) continued concerns that the US Federal  Reserve may slow its quantitative measures, 2) the unfavourable move by  Bank of Japan to keep its expanded monetary policy on hold and 3) the lowering of its global growth forecast by the World Bank as a result of the slower economic grow in China. All our model portfolios underperformed the benchmark index WoW but continued to outperform on a YTD basis. Moving forward, the global market is expected to remain anxious ahead of the US Federal Reserve policy meeting scheduled on this Thursday. As a result, in view of the intensifying market volatility, we have decided to lock in our profit on the Alpha stock, REDtone-LA. Our ‘Sell Leaders, Buy Laggards’ strategy remains unchanged. 

Market is expected to remain fragile this week. The continued concern over the fact that that central banks around the world would re-decide the level of stimulus coupled with the reduction in the global growth forecast by the World Bank as a result of the slower economic growth in China dented  world equity markets last week. The global equity market sell-off saw the FBMKLCI losing 13.40 pts (or –0.75% WoW) to close at 1,762.19 last Friday. The key lagging movers were MAYBANK (where its share price fell –2.5% WoW), AMMB (-3.9%) and Axiata (-1.2%). Moving forward, we believe the world’s as well as our own local equity markets are likely to continue to be jittery this week while awaiting the US Federal Reserve’s view and decision on its monetary policy and economy outlook on Thursday night (Malaysia’s time). While the US federal funds target rate is expected to be maintained at 0.25% according to Bloomberg’s survey, any drastic changes in its monetary policy (i.e. the slowing/discontinuation of its quantitative stimulus policy) will likely cause an adverse impact to the world’s as well as the local equity markets. Technically speaking, should the 50-day SMA (1,740) be taken out, the FBMKLCI could potentially extend its losses towards the crucial 1,720-1,700 support level range.

Portfolios underperform WoW but continue to beat on a YTD basic. All our three model portfolios recorded negative returns last week in tandem with the weak FBMKLCI performance. Our Thematic, Growth and Dividend Yield model portfolios were lower by -1.1%, -2.5% and -2.1% respectively as compared to the -0.75% WoW drop in the FBMKLCI. The relative poorer performance of our model portfolios was not a surprise given that most of our stock picks were mid- to small-capitalisation companies that have higher volatilities as compared to the blue chips. The key losers in our model portfolios last week were TOMYPAK (where its share price fell -6.4% WoW), YEE LEE (-4.5%) and AMMB (-4.3%). Despite the lacklustre performance last week, all our model portfolios continued to beat the market on a YTD basis. The THEMATIC portfolio remained as the top performer with a YTD total gain of 19.2% as compared to the FBMKLCI’s 5.94%. The GROWTH portfolio came in second with a YTD total return of 15.9% while the DIVIDEND YIELD portfolio total fund value grew by 9.7% YTD.

Taking profit on our Alpha stock.  Our Alpha stock, REDtone-LA, has delivered a fantastic return since we started to invest in it on 14th of January. In view of the current market uncertainty, we have decided to take our REDtone-LA profits off the table at RM0.27/share (last Friday’s closing price), which translated into a handsome capital return of 54.3% in six months. Together with the earlier 2.75% coupon received in mid-February, the stock has delivered a total return of 57.0% to our investment. The group’s outlook remains intact, in our view, thus we do not discount the possibility that we may reinvest in REDtone again should the share price show dip on weaknesses in the future. 

 ‘Sell Leaders, Buy Laggards’ strategy remains unchanged.  In view of the intensifying volatility in the global equity markets, we continued to favour our ‘Sell Leaders and Buy Laggards’ investment strategy, where we had recommended investors to take profits on the gainers and switch them to laggard counters two weeks ago. Our top five laggards with OUTPERFORM calls are DIGI (TP: RM5.60), TM (TP: RM6.48), Maxis (TP: RM7.17), IJMP (TP: RM3.38) and PCHEM (TP: RM6.97).

Source: Kenanga