The continued lack of fresh catalyst coupled with an uninspiring 3QCY13 result released thus far have led the FBMKLCI to trade in a sideway consolidation mode most of the time last week. Nonetheless, all our three model portfolios continued to outpace the equity market barometer, FBMKLCI, on both WoW and YTD basis as the small caps remained in the limelight while investors continued to stay aside from the heavyweights. We expect the market continue to trade in a consolidation mode next week given the current market valuation still appears rich. However, as 4Q13 is seasonally a stronger quarter, any pullback is expected to be temporary. There is no change in our 4Q view where we expect the market is likely to trade in a rangebound mode but upwards biased. Furthermore, any rallies may not be broad-base in nature. As such, our 4Q strategy remains “Buy on Weakness” and to focus on bluechip laggards and small caps to take advantage on favourable seasonal factor.

A short-term temporary pullback is expected to continue. Followed a strong rallied of 4.6% over the past two months; the local market has started to take a pullback since early of November. We expect these temporary consolidation modes to continue as the current market valuation still appears rich at this juncture, unless we see a meaningful earnings upgrade during the current 3QFY13 reporting season. There is no change in our market view, where we expect the market will continue to trade in a range-bound mode during the 4Q, and any rallies may not be a broad-base in nature. On top of that, we also believe that laggards play (benefit from the year-end window dressing activities) and small & mid-cap play (benefit from the more active retail participations) could be an appropriate strategy to implement during the traditionally strong 4Q in order to further capitalise the favourable seasonal effects. Technically speaking, the FBMKLCI is expected to find some support at 1,800 psychological level while the stronger support is likely to emerge at 1,770.

The market closed marginally lower last week. The continued lack of fresh catalyst coupled with an uninspiring 3QCY13 result that released by blue-chip companies thus far have led the local benchmarked index to trade in a sideway consolidation mode most of the time last week. At the closing bell last Friday, the FBMKLCI closed marginally lower by -0.33% or 4.93pts to settle at 1804.48. The decline in market was mainly dragged by the heavyweight O&G and Plantation counters, such as PCHEM (share price -4.1% WoW), GENT (-2.6%) and PPB Group (-4.4%). Over to the US market, both the Dow and S&P500 have made another record high on last week after the Eurozone reported better than expected economic data. The positive trading sentiment, however, has somehow deteriorated after U.S. reported a better than expected initial jobless claim and 3Q GDP numbers, suggesting that the country’s economy could grow faster than predicted, and thus raising on renewed concern the Federal Reserve will start scaling back stimulus earlier than expected.

… but our portfolios still outperformed the market impressively. Despite an uninspiring market performance last week, our small caps, such as FIBON (share price +10.0% WoW) and CENSOF (+5.0%), still performed reasonably well, helping all our model portfolios outpaced the benchmark index by 85-412 bps on WoW basis. Our top weekly performer still came from the GROWTH Portfolio, where the gain continued to extend by 379bps on last week and bringing its YTD total return to 35.5%. Meanwhile, the YTD total return of the DIVIDEND YIELD and THEMATIC portfolios were recorded at 24.1% and 23.4%, respectively, outpaced the FBMKLCI total return of 9.7% during the same period.

Small caps continued in the limelight. FIBON is still in the spotlight for the fourth consecutive week with explosive gains of 103.1% since we recommended in the early of September. Meanwhile, we have added 30k REDTONE-WA shares each into our THEMATIC and GROWTH portfolios on last Thursday to leverage on the parent company future prospect. We believe any successful conclusion of its recent projects bidding (i.e. DTTB project) would be the next key catalysts to REDTONE. Should its 49%-stake own REDTONE Network S/B (51%-stake are owned by Johor Royal family) manage to secure the project, we believe there is a likelihood for the latter to seek for public funding in the near-term which will unlock Redtone’s shareholder value.

Source: Kenanga