The bullish US market failed to inspire the local market last week as the continued lack of fresh catalyst and uninspiring results released so far kept the FBMKLCI in the negative territory most of the time. Not helping was the ten consecutive days of foreign net outflow. All our three portfolios underperformed the key index for the first time in the last three weeks as small caps could have seen profit-taking activities. However, these portfolios still outperformed the FBMKLCI by 1,301-2,400bps since introduction. Meanwhile, corporate earnings results to be announced in the final two weeks of November are generally expected to be well within market expectations. Hence, foreign fund dynamics would be the determining factor of market performance in the coming weeks. On the other hand, some oil & gas stocks could be in the limelight this week after Petronas unveiled the RM10b Pan Malaysia integrated HUC & TMM contracts last Friday.

At the crossroad… The local market suffered its third straight week of losses following a two month long commendable 4.6% rally. This could be owing to (i) the somewhat uninspiring corporate earnings release and (ii) the lack of fresh catalysts so far. In fact, there was a mild 0.2% downgrade in earnings estimates by market consensus in the past four weeks which implies that market will likely be driven by liquidity instead of earnings growth. This also means that any year-end and CNY rallies will be mainly led by PER expansion. On the other hand, the lacklustre market performance also coincided with foreign fund flow where we saw ten consecutive days of foreigners being net sellers. The last week’s total outflows stood at RM1.39b, breaching the RM1b-mark for the first time since end-Aug. Given that earnings announcement in the next two weeks is expected to be well within expectation, foreign fund flow dynamics in the coming weeks would be a key indicator to market performance. The key earnings releases this week include MAS and AASIA. Technically speaking, the FBMKLCI is expected to be well supported at 1,770-1,780 with 1,800-1,810 being the resistance levels.

Locked in consolidation mode last week. The continued bullish US equity market failed to lift the local market given the lack of new catalyst coupled with uninspiring earnings by blue chips thus far. Last week, only two index-linked stocks, MAXIS (share price +0.14% WoW) and AMBANK (-1.63%), released their quarterly results, which were well within market expectations. At last Friday’s closing bell, the FBMKLCI ended slightly lower by 0.81% or 14.61pts WoW to close the week at 1,789.87, mainly driven by CIMB (-3.15%), PETGAS (-3.27%) and MAYBANK (-1.21%). However, investors snapped up oil & gas stocks last Friday prior to the RM10b contracts awarded by Petronas to six players, including companies related to SKPETRO (-0.23%), DAYANG (-0.37%) and PENERGY (-2.69%). CARING (+21.14%) made an impressive debut last Wednesday with 14.29% gain. ON Wall Street, the Dow and S&P 500 continued to make record highs cheered by the statement from Fed’s Chair nominee Janet Yellen who commented that accommodative policies are good for the equity market.

Our portfolio underperformed WoW. After a three straight week of strong performance, all our three portfolios posted bigger losses as opposed to the fairly flat overall market as the previous weeks’ star performers FIBON (-9.09%) and CENSOF (-3.93%) faced heavy profit taking avtivities. The GROWTH Portfolio was the key loser in which the fund value retreated 3.07% WoW to end at the YTD total return of 32.92% against the barometer index’s YTD total return of 8.92% after a mild 0.81% decline WoW. On the other hand, the DIVIDEND YIELD retained its top two position with 21.95% YTD total return after a 2.53% WoW contraction, slightly outpacing the 21.93% YTD total return recorded by the THEMATIC Portfolio which value narrowed by 1.66% WoW.

Small caps the declining factor. After four weeks of explosive gains of 103.1%, FIBON saw its first week of WoW decline as the lacklustre market sentiment prompted investors to take some money off the table. Likewise, GST beneficiary CENSOF also corrected after a decent run since the BUDGET 2014 announcement at the end of last month. Nonetheless, TENAGA (+0.42%) and MPHBCAP (+0.59%) bucked the market decline, mitigating the losses at THEMATIC Portfolio. Given we have sizeable small caps exposure in our model portfolios, performance of these funds are expected to be more volatile than the market in the coming weeks.

Source: Kenanga