The market closed off its all-time-closing-high to close with a 1% WoW gain last Friday, in line with renewed global market optimism after the US debt ceiling issue was resolved. All our three portfolios continued to outperform the benchmark index, on both WoW and YTD basis as the small caps outshined the heavyweights last week. Technically, the FBMKLCI found strong support at 1,800 and we expect the bullish uptrend to continue this week. With the Budget 2014 and UMNO election concluded without any material shock to the system, there is no change to our 4Q13 Strategy which is “Buy On Weakness” and to focus on blue-chip laggards and small caps, underpinned by the seasonal factor where the 4Q is seasonally stronger than 3Q.

To re-test the recent new high next week? The Budget 2014 is within our expectations; with the implementation of 6% GST starting from April 2015 replacing the current sales tax and service tax being the key focus. As explained in our earlier sector report, the property sector is likely to benefit on the possibility of “property panic buying” prior to the GST implementation if the Singaporean and Australian experiences in 1994 and 2000 were to be emulated in Malaysia. Another potential beneficiary is CENSOF as its accounting software system is likely to be used by the government for GST implementation. Looking forward, quarterly earnings reports by DIGI (on 28 Oct) and TENAGA (on 31 Oct) are the key events to watch which should provide indications of corporate earnings trend for the upcoming November reporting season. Technically, indicator readings are indicating bullish trend for the FBMKLCI with 1,826 as the key resistant followed by the next level at 1,865 while a strong support base is seen at 1,800.

Strong performance last week. The renewed global market optimism on the resolution of the US debt ceiling issue extended to last week with indexes hitting new highs. On the local front, market participants picked up stocks last week as key senior cabinet ministers retained their party posts in the previous week’s UMNO election which signalled political stability. As a result, the FBMKLCI surged to its all-time-closing-high of 1,818.93 last Thursday before retreating to close the week at 1,817.57 on Friday. In a nutshell, the local market gained 17.98pts or 1.00% WoW, led by SKPETRO (+4.75% WoW), TENAGA (+2.40%) and PETGAS (+3.47%). SKPETRO advanced on its plan to acquire Newfield’s Malaysian E&P operations while TENAGA gained ahead of the BUDGET 2014 in anticipation of a tariff review. On Wall Street, the US market continued its uptrend with S&P500 hitting fresh high while the Dow also rallied strongly last week, relieved by the US fiscal deal.

Our portfolios continued to outpace the market. Strong buying interest in small caps such as FIBON (+18.18% WoW) and CENSOF (+4.54%) and heavyweight TENAGA boosted all our three portfolios strongly, which outperformed the FBMKLCI by 84-574bsp. GROWTH Portfolio continued to be the key gainer with 6.74% WoW gain extending its YTD total returns to RM28,554 or 28.55%. The DIVIDEND YIELD Portfolio is slowly catching up with the THEMATIC Portfolio, with the former’s fund value gaining another 3.07% WoW to its YTD total return of RM19,086 or 19.09% while the latter’s invested value expanded 1.84% WoW with YTD total return of RM22,233 or 22.23%. This is against the local barometer index which advanced only 1.00% WoW with YTD total returns of 10.52%.

Small caps took the limelight. FIBON had another strong rally last week as market anticipated that the company would adopt an aggressive strategy for its high margin factoring finance business to spur its earnings base. The 40,000 units of FIBON in the GROWTH and 30,000 units in DIVIDEND YIELD Portfolios drove the invested value higher by another RM3,200 or 24.62% WoW. On the other hand, investors chased after CENSOF prior to the BUDGET 2014 in anticipating of GST implementation. This led to further gain in our invested values for CENSOF in THEMATIC and GROWTH Portfolios by RM750 or 4.76% WoW where we have positions of 30,000 shares each. TENAGA is the key blue-chip gainer in our portfolios as it will be the clear-cut winner in view of the government’s intention to reduce subsidies which will lead to tariff review. The invested fund value of our 2,000 units of TENAGA each in THEMATIC and GROWTH Portfolios grew RM440 or 3.18% over the week. 

Source: Kenanga