The local market traded range bound last week after the strong rebound in the previous week tapered out as a lack of fresh lead and the geopolitical tension in the Middle East kept investors at bay. Nevertheless, bargain hunters helped to keep the market on an even keel which saw the FBMKLCI dropping by only 0.22% WoW while foreign funds remained net sellers albeit with the outflow decreasing. On a brighter note, water plays made a buoyant comeback after the Federal Government highlighted its “openness” to resolve the water issue with the State Government, pushing these stocks to new highs. While our DIVIDEND YIELD portfolio underperformed the FBMKLCI slightly by 6bps WoW, the THEMATIC and GROWTH portfolios rebounded, beating the local market by 94-267bps WoW, after sharp contractions in the previous week. This week, the market is expected to continue with its consolidation mode while awaiting clues from the FOMC meeting which starts from next Monday.

On a consolidation mode. The local bourse failed to sustain the momentum from the previous week’s recovery and traded sideway last week on lack of fresh leads which was further dampened by a generally unexciting reporting season for 2QCY13. The continued geopolitical tension in Syria and the weakening MYR only added to the volatility which resulted in the key index trading between 1715 and 1730 last week. Foreigners remained net sellers albeit outflow is decreasing. According to Bursa Malaysia data, foreigners remained net sellers for the 18^th consecutive day on last Friday with a total net outflow of RM77m. This brings the daily average net outflow to RM180m over the last week against the past two week’s RM503m.

Still in line with regional performance. At the closing bell last Friday, the FBMKLCI closed marginally lower by 3.78pts or 0.22% WoW to end at 1,723.80, which was in tandem with other regional markets. This was led by CIMB (-1.24%), FGV (-4.58%) and PCHEM (-1.81%). On the other hand, the positive development on the water issue in Selangor restarted the play in water stocks with PUNCAK (+8.27%) and KPS (+9.94%) surging to their fresh highs after the Federal Government highlighted its “openness” to resolve the water problem with the State Government. On Wall Street, the Dow remained flattish within a range, especially with the economic data showing more evidence that the US is maintaining a slow but steady economic recovery.

Our portfolios rebounded. After a sharp decline, our THEMATIC and GROWTH portfolios rebounded last week which beat the local market. GROWTH portfolio was the top gainer last week with total fund value gaining 2.45% WoW, against the FBMKLCI which dropped 0.22%, helped by YEELEE (fund value: +4.50%) HOVID (+4.08%) and TENAGA (+2.60%). On the other hand, value for THEMATIC portfolio rose slightly by 0.72% WoW led by TENAGA (+2.60%) and MAGNUM (+0.90%). However, the previous week’s sole winner, DIVIDEND YIELD portfolio reported that its asset value dipped slightly by 0.28% WoW as all the invested stocks posted negative return except MAYBANK (unchanged). Nonetheless, all our three portfolios continued to outperform the key index on YTD basis. THEMATIC portfolio registered total YTD return of 19.09% as opposed to the local index’s 4.26%. Total invested value of GROWTH portfolio rose 14.51% YTD while DIVIDEND YIELD portfolio’s total return was reduced to 11.13%.

Market to consolidate this week. Technically, the FBMKLCI is expected to range bound this week between the same range as at last week at between 1,715-1,730 as investors may be reluctant to take fresh positions before the FOMC meeting which will be held from next Monday (16 Sept) onwards. Strategy-wise, we believe the weakening of MYR should continue to benefit glove stocks such as HARTA (OP; TP: RM7.32), KOSSAN (OP; TP: RM6.88), SUPERMX (OP, TP: RM2.39). TENAGA (OP, TP: RM10.48) could be a perfect candidate to leverage on the subsidy rationalisation program. For defensive play, telco stocks like DIGI (OP; TP: RM5.24), TM (OP; TP: RM5.91) and MAXIS (MP; TP: RM7.32) are strong candidates. We also reckon that the heavily bashed down blue chips like RHBCAP (OP; TP: RM8.75), DIALOG (OP; TP: RM3.28 and GENTING (OP; TP: RM12.03) should provide good value plays.

Source: Kenanga