The local market managed to hold above the 1,800-psychological support level last week despite the lacklustre trading sentiment ahead of the CNY holiday. Persistent selling by foreign funds and the weakening of MYR also dampened market sentiment. All our three model portfolios underperformed the FBMKLCI last week by 1-82bps WoW as the small cap heavy model portfolios were more volatile than the broader market under the current market condition. Market sentiment is likely to be subdued this week, ahead of the coming FOMC meeting this Wednesday which outcome is critical to market direction. Having said that, we believe it is time to enter the market under our “Buy-on-Weakness” strategy with the barometer index currently below 1,825 and we are looking at 1,775 as an ideal entry level.

Time to buy? The market held well above the 1,800-psychological support level last week despite the generally lacklustre trading sentiment prevalent since beginning of the year. Going into this shortened trading week ahead of the CNY break, the local market is likely to be quiet as investors may adopt a “wait-and-see” stance ahead of the Fed meeting on 28th-29th January which will be Ben Bernanke’s final Fed meeting (before he steps down this month-end) and the market is expecting another round of tapering. As such, the outcome of this FOMC is vital to market prospects. Having said that, at current level, we believe it is time to “Buy-on-Weakness” as the FBMKLC index is below 1,825 although we think 1,775 (6% discount to our end-2014 index target of 1,890) could be a more ideal entry level as per our 1Q14 Investment Strategy.

… as price weakness continued. Last week, the persistent weakening of MYR and foreign selling continued to dampen the local market sentiment while the impending FOMC meeting this week kept investors sidelined. In fact, foreign funds remained as net sellers for 14 straight days as at last Friday, while the MYR deteriorated further against the greenback to a new low since end-Aug last year at 3.3334 compared to 3.2980 the week before. At last Friday’s closing bell, the benchmark index fell another 10.44pts WoW or 0.58% to settle slightly above the 1,800-psychological level at 1,802.57. CIMB (-2.95%) continued to be the index’s main laggards, followed by MAYBANK (-1.53%) and SKPETRO (-3.43%). On a positive note, TENAGA gained slightly by 0.17% over the week as the integrated utility company reported stronger-than-expected 1Q14 results last Thursday. On Wall Street, all three major stock indexes slid more than 2% last Friday as the worry of crisis of confidence in Argentina spread to other emerging market currencies. Meanwhile, the growing concerned about slower growth in China and U.S. monetary tightening were also fuelling the sell-off last week.

All three portfolios underperformed the market. Given the sizeable small caps exposure in our model portfolios, performances of these funds were more volatile than the market with all three portfolios underperforming the barometer index by 1-82bsp WoW. THEMATIC Portfolio was the worst performer, extending its losses by another 1.40% WoW to register negative YTD total return of 1.70% while GROWTH Portfolio widened its negative YTD total return to 1.01% after last week’s loss of 0.59%. This is against the 30-stock key index which declined 0.58% WoW, widening negative YTD total return to 1.75%. Meanwhile, DIVIDEND YIELD is still the only fund having positive YTD total return which narrowed to 0.03% as it lost 0.95% of its fund value over the week.

Alpha stock REDTONE-WA the culprit. While small caps, especially REDTONE-WA (-2.53%), in the model portfolios continued to face selling pressure, heavyweight TENAGA reversed its previous week’s loss and IJM (+0.52%) also rose higher. REDTONE had faced three straight weeks of selling pressure after the group failed to secure the Digital Terrestrial Television Broadcast (DTTB) infrastructure project with its warrants (REDTONE-WA) losing 8.33% of its value YTD. However, we remains optimistic on this Alpha stock given that the group’s earnings prospect remain promising while not getting the DTTB infrastructure contract may be a blessing as it was not as lucrative as previously estimated. Besides, REDTONE is expected to announce a sterling set of 2Q14 results this week, which is likely to be above expectations with net profit expecting to grow 25%-30% QoQ on healthy growth and margin expansion.

Source: Kenanga