The local equity market is expected to see another quiet trading this week with thinner volume amid the holiday season. The FBMKLCI recorded another record-high last week, in tandem with the global equity market, thanks to the continued window dressing activities and better U.S. economic data. We have closed all our model portfolios last Friday and recorded total returns of 21% to 33%, outperforming the FBMKLCI by 740-1,954 bps. Moving on to 2014, we expect the local equity market to perform better in the 1H rather than 2H. 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. We will introduce new sets of model portfolios in early January 2014.

Expect another quiet trading week ahead. We believe the current low-volume sideways trend is likely to continue until the end of the year, albeit we do not discount that the index may potentially hit a new high as a result of the window dressing activities on selective blue chips. Moving on to 2014, we expect the local equity market to continue to be relatively buoyant in the 1H, underpinned by the strong domestic economy and liquidity. Nevertheless, the 2H14 is expected to be challenging given the uncertainty of U.S and domestic monetary policy direction. Technically speaking, should the 30-stock index manage to break above the 1,865 resistance level, the next upside level to look out for is 1,889. 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 but with lacklustre volume. As envisaged, the local benchmark index closed at another all-time high at 1,861.06 last Friday, in tandem with global equity markets, underpinned by the continued window dressing activities that were mainly driven by local institutional funds and better U.S. economic data. The strong rally, however, was not supported by a conviction trading volume given that most of the fund managers and investors were on holiday. Meanwhile, the persistence selling by foreign funds (as Fed. taper spurs outflows from emerging markets) also led the Ringgit to continue to weaken against the US Dollar to USD3.288 last Friday from USD3.236 two week ago. At the close, the FBMKLCI advanced by 23.03 points or +1.25% WoW to 1,861.06.

Another record-high Wall Street cheered by better economic data. On the U.S. equity market front, Wall Street sprung a strong rally again last week after report that initial claims for state unemployment benefits fell to the lowest level in nearly a month, a hopeful sign for the labour market, coupled with better holiday retail sales that rose in November and December. While the holiday season has made the recent claims data so volatile, last week report showed claims continued to be in a range that supports expectations for faster economic growth next year. The stronger consumer spending seems to push the U.S. economy to accelerate in the second half of the year and most economists expect the momentum will carry over into 2014.

Model portfolios closed in a range of 21%-34% in year 2013. As highlighted in our previous week report, we closed all our model portfolios on last Friday. The GROWTH portfolio continued to maintain its leading position with a total realised return of +33.5%, followed by THEMATIC (+24.9%) and DIVIDEND YIELD (+21.3%). FIBON (where the realised total return stood at RM9.9k or 76% gain on investment); TENAGA (RM9.5k, 69%); and REDTONE-LA (RM5.6k, 56%) were our top three leading counters while the top three laggers came from REDTONE-WA (RM2.7k, -9%); TM (-RM1.2k, -7.4%); and GOB (-RM1.0k, -8.4%) due mainly to unfavourable investment timing. All in all, we are fairly satisfied with our model portfolio performance in year 2013, albeit we believe the returns could be higher should we had adopted an aggressive investment approach, given the returns that have outpaced the FBMKLCI which rose +14% during the same period and a 12-month fixed deposit rate of 3.45%.

Source: Kenanga