Despite the US market hitting record high, the local market had a seesaw trading week with the FBMKLCI dipping slightly by 0.39% WoW last week. Nonetheless, all our three portfolios continued to outpace the barometer index, on both WoW and YTD basis as the small caps remained in the spotlight while the heavyweights saw some weakness in share price. Given the market valuation looks stretch which above its mean and the gap between market PER and consensus’ target is narrowed to below 3%, we expect the market to pull-back further. However, as 4Q13 is seasonally a stronger quarter, the pull-back is expected to be temporary. The technical chart shows an immediate support of 1,800 with strong support at 1,770. Our strategy remains “Buy on Weakness” and to focus on blue-chip laggards and small caps.

A short-term temporary pull-back? After surging to a fresh high in the previous week, the local market took a pull-back last week and we expect it to continue this week. The market valuation is stretched at 16.9x PER, which is above its mean and the discount between the FBMKLCI spot and the consensus’ target of 1,867 is now approaching to c.3%. All these signify a possible market pull back where the technical reading shows a crucial support level of 1,800. However, as 4Q is traditionally a stronger quarter thus any pullback is temporary with a strong support likely to emerge at 1,770. This week is a short trading week with festive celebration, which may keep investors at bay. In addition, there is no major earnings release is expected this week. In any case, earnings report card is unlikely to surprise the market on the upside given the cue given by last week’s key earnings reports from DIGI and TENAGA where earnings were fairly within expectations. We adhere to our 4Q13 Strategy, which is “Buy on Weakness” and to focus on blue-chip laggards and small caps, underpinned by the seasonal factor.

The market closed lower last week. Uninspiring corporate earnings card, lack of fresh catalyst and holiday mood sentiment ahead the festive season caused the domestic market to have a seesaw trading session last week. At the closing bell last Friday, the FBMKLCI closed slightly lower by 0.39% or 7.16pts to 1,810.41. The decline in market was mainly dragged by the heavyweight banks, such as MAYBANK (share price -1.90% WoW), PBBANK (-1.51%) and CIMB (-1.09%). In addition, UEMS (8.84%) fell after the Budget 2014 which was tabled in the parliament a week ago as the unfavourable policy to property sector will hurt its earnings, especially its Johor property. On the flipside, DIGI (+0.10%) and TENAGA (+0.32%) inched up slightly after reporting satisfactory quarterly results. UMWOG made an impressive debut with 10.71% gain last Friday. Over to the US market, both the Dow and S&P500 continued to hit new record highs as the issues for debt ceiling, government shutdown and QE tapering had been solved, which prompted investors coming back to the equity markets.

… and yet our portfolios still beat the market impressively. Despite a weaker market, the small caps, such as FIBON (share price +15.3% WoW) and CENSOF (+5.21%), helped pushing our portfolio value higher, which beat the benchmark index by 156-628 WoW. However, our gains were capped by losses at blue chips like MAYBANK, TM (-0.38%) and RHBCAP (-1.12%). The GROWTH Portfolio continued to lead the gain with 5.89% gain WoW, extending its YTD total return to 32.76%. The YTD total fund value of DIVIDEND YIELD Portfolio rose another 3.42% WoW to 22.23%, narrowing its gap with the THEMATIC Portfolio’s YTD total return of 23.08% as the latter only posted 1.17% WoW gain. This is against the YTD total return of 11.23% for the FBMKLCI. The better performance of GROWTH and DIVIDEND YIELD Portfolios as opposed to the THEMATIC Portfolio is mainly the investors are looking for investment certainty while the market valuation is peaking. Hence, the certainty of earnings growth and yield plays are preferred over thematic play.

Small caps still in the limelight. FIBON is still in the spotlight for the third consecutive week with explosive gains. The small cap stock reported its 1Q14 with earnings growing 10% YoY despite lower revenue on margin expansion. The market is still anticipated that the company would adopt an aggressive strategy for its high margin factoring finance business to spur its earnings base. The investment values of FIBON in the GROWTH (40,000 units) and DIVIDEND YIELD (30,000 units) Portfolios surged 84.62% since we included the stock in these two portfolios on 9 Sep-13. On the other hand, the fund values of CENSOF in THEMATIC (30,000 units) and GROWTH (30,000 units) Portfolios grew 15.24% within three weeks when we added the stocks on 11 Oct-13. 

Source: Kenanga