Kenanga Research & Investment

Kenanga Research - Our Portfolio - Gasping For Air

kiasutrader
Publish date: Mon, 02 Sep 2013, 10:37 AM

The local market rebounded strongly towards the end of last week after a prolonged sell-down which lasted almost two weeks. Fears of the US stimulus coming to an end, a slowdown in the global economy and geopolitical tension in the Middle East were the main reasons for the exit of funds from the market. The FBMKLCI started the week red with another round of heavy liquidation, especially on blue-chips with high foreign shareholdings. Not helping was the softening of MYR against the major currencies which added more pressure to the local market. However, local institutional funds took up the slack on bargain hunting activities for bashed down blue-chips thus helping the FBMKLCI to close 0.4% WoW higher at 1,727.58. Our THEMATIC and GROWTH portfolios underperformed the market with losses of 4%-6% WoW due to these portfolios’ higher market beta. Nonetheless, the DIVIDEND YIELD portfolio managed to beat the key index with 1.0% WoW gain. Technically, the index managed to close above the 1,720 crucial level, signifying a likelihood of further rebound this week but may not be sustainable on lack of fresh positive catalyst. Thus, we are cutting losses on the high beta stocks: GOB and REDTONEWA in both the THEMATIC and GROWTH portfolios to reduce our risk exposure.

Rebounded on bargain hunting. The local equity market started the week with continued sell-down by the foreign funds on concerns of a slowdown in global economy and the worsening geopolitical tension in Syria exacerbated by a possible US military intervention. However, local GLC funds took the opportunity to bargain-hunt and picked up heavily bashed down heavyweights which helped the market to reclaim earlier losses. According to Bursa Malaysia, the total outflow of foreign funds was RM2.05b in the first four days of last week against the total outflow of RM2.90b the previous week. As such, foreign funds have remained as net sellers for the 12 consecutive trading days. On the other hand, local institutional funds were net buyers at RM2.30b in the first four days of last week compared to the RM2.65b the previous week.

In line with regional performance. At the closing bell last Friday, the FBMKLCI closed with a meagre WoW gain of 6.51pts or 0.4% to settle at 1,727.58, fairly in line with the regional markets. The market movers last week were AXIATA (+3.4%), TENAGA (+2.1%) and IOICORP (+2.9%). Heavyweights with high foreign shareholdings, such as CIMB (-2.7%), GAMUDA (+2.3%) AXIATA, experienced volatile price movements on tussle between the selling foreign funds and buying local funds. Over to the US market, unlike the Asian market which had rebounded after the plunge, Wall Street is consolidating and mainly trading sideway after its recent sell-down, which may lead to further weakness in the absence of catalyst.

Invested stocks with higher beta were hit badly. Despite the market rebound from its low last week, both our THEMATIC and GROWTH portfolios lost 4.2% and 6.0% over the week. This is mainly due to the beta of some of our invested stocks are high beta. The high beta REDTONE-WA (-14.8%) and GOB (-10.6%) lost 16.1% and 10.8% of their invested values in both the THEMATIC and GROWTH portfolios which offset the gains from the heavyweights invested stocks such as RHBCAP (+2.7%), TENAGA and TM (+3.8%). On the other hand, our DIVIDEND YIELD portfolio managed to beat the market with a 1.0% WoW gain, as these low beta stocks are less affected by the volatile market sentiment. However, all our three portfolios still outperformed the benchmark index on a YTD basis by 684-1440bps. The THEMATIC Portfolio remains as the top performer with a total return of 18.68% in contrast to the FBMKLCI’s total return of only 4.28%. GROWTH portfolio’s total return was reduced to 13.1% while the fund values for DIVIDEND YIELD improved to 11.1%.

Market to rebound further but may not be sustainable. Technically, the FBMKLCI managed to close above the 1,720 psychology level, which was also our “Buy on Weakness” level. Hence, the market is likely to rebound further this week. However, the rebound may not be sustainable as the main worries mentioned above remain without any fresh positive developments. As such, given the uncertainties, we decided to initiate cut-loss measures for the first time on two high beta stocks: REDTONE-WA and GOB from both the THEMATIC and GROWTH portfolios. In total, we lost RM2,250 each for both of the portfolios. Strategy-wise, we continue to believe that the bashed down blue chips, such as DIALOG, GAMUDA, MAYBANK and GENTING, could provide good value plays while defensive plays like DIGI and TM should fare well in this volatile market.

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