The local equity market is expected to see quiet trading this week with thin volume due to shortened working days. Nevertheless, the global equity market is expected to react to last Friday’s U.S. job data, which gave more clues to the timeframe of U.S. Federal Reserve stimulus cuts. The FBMKLCI has started the year with a ‘take-profit’ mode, following a strong performance in 2013. However, all our model portfolios have experienced a good start in 2014, outperforming the YTD FBMKLCI by 364-391bps and 192-219bps on a Week-on-Week basis.

Quiet trading week ahead. The local equity market is expected to see quiet trading this week as investors may be away due to the two public holidays. This week, the market should react to the last Friday’s Wall Street performance that was mainly affected by the job numbers as well as the expectation of the pace of stimulus cuts by Federal Reserve. Technically speaking, should the benchmark 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, strong buying interest is expected to emerge between the 1,821-1,826 level, followed by the 1,800 psychological level.

The year started with a profit taking mode. Following a strong performance in 2013 in which total return advanced by +14.5% YoY, the FBMKLCI started this year with a ‘profit-taking’ mode and recorded –2.1% on a YTD basis. On a week-on-week basis, the benchmark index was lower by -0.44% or 8.13 points to 1,834.74, no thanks to the poor share price performance of IOI CORPORATION (-7.4% WoW), CIMB (-2.8% WoW) and PETGAS (-2.5% WoW). Despite the uninspiring trading sentiment last week, the Ringgit, however, has advanced to a threeweek high of RM3.268 (+0.6% WoW) against the Dollar. We believe the fairly optimistic view on Ringgit from Goldman Sachs and Barclays was the key reason driving the currency last week, although Fitch continued to highlight that Malaysia could move closer to a downgrade if a persistent current-account deficit emerges alongside fiscal deficit.

A range bound mode in Wall Street. On the U.S. front, stocks were mainly trapped in a range bound mode last week pending more solid economic data for clues to whether the Federal Reserve will accelerate the pace of stimulus cuts. Meanwhile, Alcoa, the largest U.S. aluminium company, marked the unofficial start of earnings season last week by reporting 4Q profit that missed consensus estimate amid a glut of product for the aerospace industry.

Analysts predicted that companies in the S&P 500 will increase their earnings by 9.7% on average this year and their sales by 3.8%, according to estimates compiled by Bloomberg. Portfolios started the year well. All our three model portfolios performed well last week with the DIVIDEND YIELD (+1.75% WoW gain) portfolio taking the led followed by the THEMATIC (+1.67% WoW) and GROWTH (+1.48% WoW) portfolios, outpacing the 30-stock index performance of -0.44% during the period. Note that, we have merely invested 61%-65% of the RM100k allocation for each of the portfolios. Our investments in both TENAGA and FIBON have performed well last week, which share prices have advanced by 5.3% WoW and 8.3% WoW, respectively. REDTONE, on the other hand, was also in the limelight where the group had failed to secure the Digital Terrestrial Television Broadcast (DTTB) infrastructure project. This, however, is not a major negative to the group given that some of the key criteria have come in at the lower end which may affect the project’s ROI. These include (i) non-inclusion of the vital 700Mhz spectrum band, which has a strong in-building mobile signal penetration capability and thus eyed by all the major celcos and (ii) longer-than-expected gestation period given the country’s analogue switch off data has been deferred, thus making the ROI a big challenge under the project deferment. There are no changes to our REDTONE FY14-FY15 earnings estimates as we did not assume any DTTB earnings contribution in our financial model. We maintain our OUTPERFORM call on REDTONE with an unchanged target price of RM0.80 and implied a RM0.56 target price to REDTONE-WA.

Source: Kenanga