The signals that delivered by US’ FOMC meeting to taper QE3 by end of the year have trigged the global equity markets' sell-off last week. The local equity market also went south, in tandem with the global equity markets’ performance, and lowered by 36% WoW. Despite a higher volatility on last week, two of our model portfolios, namely the GROWTH and DIVIDEND YIELD, have managed to outperform the FBMKLCI. On a YTD basis, all three model portfolios have recorded double-digit total return as compared to 5.6% in the index. Moving forward, concerns over a large outflow from the emerging market may put some pressures to the market. Nevertheless, the impact to the local market is unlikely to be severe judging from the current strong excess liquidity in the local banking system as well as the money market. Our ‘Sell Leaders, Buy Laggards’ strategy remains unchanged.

A volatile week. As expected, the global market has experienced a high volatility last week. The conclusion of 2-day US’ FOMC meeting, where the Federal Reserve’s plan to begin reducing its stimulus later this year if the economy strengthens, has led the global key equity markets plunged more than 2% over the week. This is not a surprise as the Fed’s program of bondbuying has fueled stock market gains since last September, sending indexes to a series of alltime highs. The global equity market sell-off saw the FBMKLCI losing 6.34 pts (or –0.36% WoW) to close at 1,755.85 last Friday. Despite the marginal drop on week-on-week basis, the FBMKLCI has experienced a higher volatility that trading between 1,782.41 to 1,737.66 range at last week. The key lagging movers were GENTING (where its share price fell –4.2% WoW), IOI (-2.9%) and SIME (-1.4%). Concerns over a large outflow of portfolio capital from the emerging markets, which were the major recipients of hot money, would dominate the market sentiments over the next few months as the trend reversal would put downward pressure of domestic assets, especially equities and bonds. Although the Bursa will not be immune to the selling pressure, the strong excess liquidity in the local banking system as well as the money market could provide some cushions during the sell-off, if any. All in all, there is no change in our FBMKLCI year-end target of 1,800 as well as its 12-month index target of 1,845 for now, pending on the upcoming strategy review. Technically speaking, the FBMKLCI managed to settle above the crucial 1,750 level. Should this level be taken out in the near term, the benchmarked index could potentially ‘close the gap’ and retreat back to the 1,720 level. 

Portfolios continue to beat on a YTD basic. Our GROWTH and DIVIDEND YIELD portfolios have reversed its downward trend and outperformed the index this week by recording a relatively flat return on WoW basis as compared to -0.36% in the FBMKLCI. The THEMATIC portfolio return, however, was lowered by -1.1% WoW, no thanks to the multi-purpose holding which share price has retreated -3.2% WoW to RM3.59, in tandem with the broad market weaker sentiment. On a YTD basis, all our three model portfolios continued to record doubledigit return and outperformed the benchmarked index by 458-1290 bps. 

Taking profit on PUNCAK and TOMYPAK. In view of the expected higher market volatility followed the recent US Fed comment on the potential scale back of its bond purchases later this year if the economy is strong enough; we have decided to take profit on our 12k PUNCAK shares at RM1.86/share in the Thematic portfolio. The disposal has led us to realise RM5,680 gain or a 34.1% total return within a six-month investment horizon. Similarly, we also took profit on TOMYPAK at RM1.39/share on last Friday given the current share price already ahead of our target price of RM1.30. We have disposed all our positions in TOMYPAK, where we have 15k shares in the GROWTH portfolio as well as 12k shares in the DIVIDEND YIELD portfolio, and led us to record a RM2,100 and RM1,680 gains (both +11.2%) respectively.

Reiterated our ‘Sell Leaders, Buy Laggards’ strategy. In view of the intensifying volatility in the global equity markets, we continue to favour our ‘Sell Leaders and Buy Laggards’ investment strategy, where we have recommended investors to take profits on the gainers and switch them to laggards three 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