We expect the local equity market to see quiet trading this week with thinner volume ahead of the coming holidays. The conclusion of the U.S. FOMC meeting last week where it announced the start of stimulus tapering had at last removed the near-term timing uncertainty of the much anticipated move. Technically speaking, the FBMKLCI’s positive technical outlook appears intact; strong support should emerge at the 1,826 level followed by the psychological 1800 level. All our three portfolios went south last week, no thanks to the volatile share price performances in small caps. Nonetheless, YTD, our portfolios are still ahead of the FBMKLCI index by 880-1,862bps. We will review and close all our model portfolios this Friday and introduce new sets of model portfolios in early January 2014.

Expect a quiet trading week with thinner volume. Following the conclusion of the U.S. FOMC meeting, we expect the local as well as global equity markets to see quiet trading this week as many investors have already closed their books for the year ahead of the coming holidays. While the FBMKLCI key indicators are showing some weakening signs due to the profit taking activities, the overall trend remains bullish with an upside bias. Technically speaking, should the 30-stock index manage to break above the 1,851 resistance level, the next upside level to look out for is 1,865. On the flip side, any pullback towards 1,826 is likely to be supported by strong buying interest, if not the 1,800 psychological level.

Continued support from window dressing activities. The local benchmark index closed at another all-time high at 1,850.90 last Tuesday, in tandem with global equity markets, underpinned by the continued window dressing activities that were mainly driven by local institutional funds. The strong rally, however, has lured some investors to lock in their gains for the year ahead of the coming holidays thus leading the benchmarked index to soften in the later part of the week. On top of that, the 20% single-day plunge in IOICORP’s share price (following the ex-entitlement of the group’s demerger proposal) last Thursday also dampened the index performance. Meanwhile, the persistence selling by foreign funds also led the Ringgit to continue to weaken against the US Dollar to USD3.282 last Friday from USD3.236 a week ago. At the close, the FBMKLCI was down by 2.32 points or -0.13% WoW to 1,838.03.

Another record-high Wall Street cheered by Fed’s decision. On the U.S. equity market front, Wall Street sprung a strong rally last Wednesday after the Federal Reserve announced a plan to trim its monthly bond purchases by USD10b to USD75b, beginning in January. The statement was accompanied by a dovish indication of rock-bottom interest rates for the foreseeable future, a combination that gave the Dow and the S&P 500 their largest daily gains in two months. While the Fed’s move came as a surprise to many in the market, it put to rest the question of when the Fed would begin to scale back its bond-buying programme and came as a relief which removed the near-term uncertainty.

Model portfolios dampened by small caps. The negative performance in our small caps such as CENSOF (-7.6% WoW), Fibon (-4.3%) and REDTONE-WA (-4.3%) reduced the THEMATIC and GROWTH portfolios' value by -2.4% WoW and -2.7% WoW in contrast to the FBMKLCI’s 0.13% decline. DIVIDEND portfolio, meanwhile, was lower by -0.4% WoW, thanks to the resilience performance of our Big caps investment. On a YTD basis, all our three model portfolios continued to perform well with the GROWTH portfolio maintaining a leading position with a total return of +30.9%, followed by THEMATIC (+23.1%) and DIVIDEND YIELD (+21.1%), outpacing the FBMKLCI that rose +12.3% during the same period.

All model portfolios will be reviewed and closed on Friday. Our model portfolios have performed reasonably well YTD. We will conduct a review and close all the three model portfolios this Friday and introduce new sets of model portfolios in January 2014.

Source: Kenanga