Although traded mostly in positive territories last week after 5 days of losses the week before, the market is expected to trade sideways this week with a consolidation mode with its upside likely capped at 1,770-80. The benchmark index managed to edge up by 1.01% WoW last week. Our portfolios had a mixed performance in the week against the key index but all of them continued to outperform the market by 386-1300bps on a YTD basis. This week, investors should look for stocks with higher foreign shareholdings, which were sold down in recent weeks. A buy-on-weakness strategy on these stocks is our top choice. Watch out also for the release of our 3Q13 Strategy this week, which will present our market and stock outlooks for the next three months. For this week, the focus will be on laggard plays and news flows stocks as well as on stocks that were sold down by foreign shareholders recently. Stay tuned! 

A recovery week. Last week, the FBMKLCI started with a continuation of its previous week’s losses before turning positive in mid-week, snapping its five consecutive days of losses. This was fairly in line with the regional market performance. At the end of last Friday’s session, the benchmark index rose by 17.69pts or 1.01% to settle at 1,773.54. Last-minute mid-year window dressing and bargain hunting trades also pushed some of the bank stocks higher such as MAYBANK (share price +1.4% WoW), AMBANK (+3.8%) and CIMB (+1.0%). These bank stocks were under pressure on news that the central bank was likely to remove the DIBS financing to curb the speculation in the property sector. Last week’s market movers were GENTING (+3.8%), IOICORP (+3.8%) and MAYBANK (+1.4%). On the US market, the Dow started the week with losses on concern of China’s economy prospects but turned positive from last Tuesday onwards as encouraging domestic economic data sent the index higher.

Mixed performance for our portfolio.  Last week, only one of our portfolios i.e. the THEMATIC portfolio (+1.96% WoW) beat the FBMKLCI (+1.01%), thanks largely to the debut of MPHBCAP on Friday, which saw its share price jumping 37% on the first day of trading. The fund value of the DIVIDEND YIELD portfolio rose 0.39%, while the GROWTH portfolio contracted by 1.04% over the week. The underperformance of our portfolios vs. the index was partly due to the low weighting of index-linked stocks in our portfolios. However, on a YTD basis, all our portfolios continued to outperform the market by 386-1300bps. The THEMATIC portfolio remained as the top performance with a total return of 19.72% in contrast to the FBMKLCI of +6.72%. The GROWTH Portfolio came in second with 15.74% in total gains followed by the DIVIDEND YIELD portfolio (+10.58%).

Banking stocks lead the gains. Benefiting from bargain hunting, all the three banking stocks that we invested in helped to lead the portfolios. AMBANK, where we have 1,500 shares, added RM405 to our funds value or specifically 4.02% to the THEMATIC Portfolio, while the 1,500 shares of RHBCAP helped to push the GROWTH portfolio value by RM180 or 1.54%. The 1,000 shares of MAYBANK raised the fund value of the DIVIDEND YIELD portfolio by RM140 or 1.55%. On the other hand, we added MPHB last Tuesday for the first time to the DIVIDEND YIELD Portfolio with 5,000 shares @ RM3.57. Its new dividend policy of paying out at least 80% of its earnings (from 50% in the past three years) makes MPHB one of the attractive yield stocks at 4%-5%, which matches our investment criteria for the DIVIDEND YIELD portfolio. 

Upside to be capped at 1,770-80.  After five straight days of sell-down in the past two weeks, some stocks appeared to be oversold. Thus, the broader market is expected to consolidate further and trade sideways. As such, the investment strategy in the coming weeks should be to “buy on weakness” especially on those stocks that sold-down recently and have higher foreign shareholdings. Technically, the FBMKLCI’s upside is capped at 1,770-80, which is not far off from our year-end target of 1,800 based on fundamental basis. We will be releasing our 3Q13 Strategy this week with the stock pickings focusing on: 1) laggards, 2) stocks that had been heavily sold down by their foreign shareholders and 3) news flow-driven stocks. This should investors a better picture of where they could put their money in for the next three months. Stay tuned!

Source: Kenanga