The market is expected to be choppy this week prior to the U.S. debt ceiling deadline on 17th of October. Although we expect this major uncertainty to be settled eventually, it will have a significant impact to the global and local financial market should the current U.S. political standoff in Capitol Hill continues. Despite trading mostly sideways last week, the FBMKLCI managed to close higher last Friday by +0.52% WoW (or 9.19 pts) to 1,785.75 encouraged by progress in negotiations to raise the U.S. debt limit. Our portfolios performed mixed on a WoW basis, but continued to outpace on a YTD basis by 699-1302bps. Technically, the FBMKLCI is expected to find strong support at the 1,750-1,760 level, its channel support level with resistance between 1,800 and 1,826.

D-day – 17th of October. This week limelight is definitely on the U.S. debt ceiling’s October 17 deadline, where the current prolonged political standoff could significantly impact the global financial market if no concrete decision is made prior to the deadline. Thus far, both Democrats and Republican leaders appear ready to end a political crisis, albeit no deal has emerged yet, that has shuttered much of the U.S. government and pushed the country dangerously close to default. Market is expected to be choppy in the early part of this week as a result of the external uncertainties. Technically speaking, strong support is seen at 1,750-1,760 at the channel support level with resistance at 1,800-1,826.

Market cheers. Last week, the local bourse opened shop with a sideways trading mode as investors were generally shying away from taking major position, as pressure mounted over the external development in the U.S. especially by the lack of progress in resolving the U.S. budget stalemate as well as the debt ceiling. The market sentiment, however, improved in the later part of the week amid signs that the U.S. could soon resolve the fiscal impasse. At the closing bell last Friday, the barometer closed +0.52% higher (or 9.19 pts gain) and settled at 1,785.75. Market movers were PBBANK (+1.7%), PCHEM (+3.4%) and MAYBANK (+1.3%) while the lagging counters came from SIME (-1.1%), IOI (-0.9%) and TM (-1.3%). Over in Wall Street, major US stock indexes posted their strongest rally in more than nine months last Thursday on some signs of progress in negotiations to raise the U.S. debt limit. The optimism, however, was somehow blunted after President Barack Obama rejected a Republican plan to extend the debt ceiling by several weeks because it did not also end the partial government shutdown.

Our portfolios performed mix last week. GROWTH portfolio was the top performer last week with total fund value gaining 0.63% WoW, against the FBMKLCI which increased by 0.52%, helped by FIBON (fund value: +3.1%) and YEE LEE (+0.9%). Meanwhile, the newly added Censof shares also performed positively and had advanced by 1.0% since we added the shares at RM0.525 on last Friday. On the other hand, value for THEMATIC portfolio improved marginally by 0.27% WoW, while the DIVIDEND YIELD portfolio recorded a relatively flat performance on WoW basis. On a YTD basis, all our three portfolios’ total return still outperformed the benchmark index, with GROWTH taking the lead, advancing by 21.6% followed by THEMATIC (+19.7%) and DIVIDEND YIELD (+15.5%) vs. FBMKLCI’s 8.6%. Note that, our fund performance is more volatile than the benchmarked index due to our investment in mid-and-small stocks, which means a higher beta profile than the market.

Adding Censof into our portfolios. We have added 30k shares each to our Thematic and Growth portfolios last Friday @ RM0.525/share. The group’s GST-ready accounting software is its plus factor should the government outline the details of GST roadmap in the upcoming budget 2014. Meanwhile, we continue to remain positive on the proposed acquisition of the 45.03% Time Engineering Berhad stake (from Khazanah Nasional Berhad), where we believe massive synergetic benefits could be created. Besides products’ services synergies, the enlarged Censof group could also benefit from an enlarged client base, better system integration as well as the economies of scale. Our Censof target price is placed at RM0.61 (based on the existing businesses and a targeted FY14 PER of 15.5x) and RM0.88 should we include a full-year Time Engineering’s businesses contribution to the enlarged group in CY14. 

Source: Kenanga