The benchmark index managed to settle at a new closing high last week and may re-test the 1,800 mark this week on momentum from the improved sentiment. The re-rating plays like TENAGA and REDTONE-WA were last week’s top gainers, helping to extend the gains of THEMATIC and GROWTH Portfolios to new highs. All in, all our three portfolios continued to outperform the FBMKLCI by 294-2112bps on YTD basis. In view of 3Q being a seasonally weaker quarter, the market may experience higher volatility that could cause a short-term correction. Thus, there is no change in our investment strategy where we continue to recommend investor to adopt “Buy On Weakness” strategy when the index is below 1,720 and “Sell On Strength” when the index trades above the 1,810 level. 

Bullish sentiment sustained.  The local market continued its uptrend last week which was generally in line with the regional markets, following the positive statement by Ben Bernanke in the previous week which kept the positive market sentiment alive. The FBMKLCI rose 12.09pts or 0.68% WoW to end at a new closing high of 1,797.74 last Friday as investors continued to pick up TENAGA (share price up +7.5% WoW) ahead of its 3Q13 results release last Thursday. The national utility giant continued to rally last Friday to close at its 6-year high of RM9.30 after the strong set of 3Q13 results which beat consensus by 20% on an annualised basis. Besides TENAGA which was the key market mover, MAYBANK (+2.3%) and MISC (+9.7%) played supporting roles in leading the market higher. On the US front, its two key indicators, Dow and S&P500 hit fresh highs as investors’ optimism on the market was rejuvenated after the Fed Chairman’s decision to maintain the current monetary policies despite some divisions between Fed officials over the timing to scale back bond purchases as revealed in the June meeting minutes.

Thematic and growth ideas led the gainers. Two of our portfolios, namely THEMATIC and GROWTH benefited from the renewed overall market sentiment as investors continued to seek for investment ideas such as re-rating stories. This fuelled two of our invested stocks - TENAGA and REDTONE-WA to new record levels. Share price of REDTONE-WA rallied 26.1% WoW on expectations of a good set of 4Q13 results to be released by the end of this month. TENAGA contributed to THEMATIC and GROWTH Portfolios gains by 9.31% and 9.41% respectively while REDTONE-WA contributed 28.40% each for both portfolios. As such, our THEMATIC and GROWTH Portfolios registered 7.74% and 9.43% WoW gains, beating the key index which reported a meagre gain of 0.68%. However, the DIVIDEND YIELD Portfolios underperformed the market with a gain of 0.22% due mainly to a 2.19% loss in fund value for TM (-2.4%) as it continued to face selling pressure.

THEMATIC Portfolio the top performer.  All our three portfolios continued to outperform the key index on a YTD basis. THEMATIC Portfolio retained its top spot with total return of 29.34% as opposed to the FBMKLCI which posted a total return of 8.22%. Total return for GROWTH is growing fast and is not far off from THEMATIC Portfolio, with 28.28% gains YTD thanks largely to YEELEE (share price +27.0% since  we first invested on 23 May), TENAGA (+34.6% since 4 Jan) and REDTONE-WA (+37.0% since 3 Jul). Last Friday, we added 15,000 shares of GOB each into THEMATIC and GROWTH Portfolios at RM0.83 as we believe it is poised for a re-rating given its sizeable landbanks that have not been reviewed for years. We have estimated its RNAV to be RM3.08/share and fair value of RM1.23/share with a book value of RM1.27/share. On the other hand, DIVIDEND YIELD  Portfolio registered a total return of 11.16% with only four stocks in the portfolio. Given the rising share prices, stock selection for this portfolio is getting tougher to meet our investment criteria of minimum 4% net yield for DIVIDEND YIELD Portfolio. As such, we do not expect this portfolio to have new stock additions as often as the other two portfolios. 

To trade above 1,800?  Although the FBMKLCI failed to close above the 1,800 mark last Friday, based on technical readings, the key index  is likely to re-test this psychological resistance level this week before challenging the next higher level of 1,826. Given that 3Q is seasonally a weaker quarter, the market may experience higher volatility that could cause a short-term correction. Thus, there is no change in our investment strategy where we continue to recommend investor to adopt “Buy On Weakness” strategy when the index is below 1,720 and “Sell On Strength” when the index trades above the 1,810 level.

Source: Kenanga