The local market experienced volatile trading in January due to the challenging external factors such as: (i) unexpected fall in manufacturing in both the U.S. and China, (ii) rout in emerging-market currencies as a result of Argentinean Peso devaluation, and (iii) second stimulus cut by U.S. Fed. Meanwhile, the persistence foreign funds outflow also continued to dent the local currency with Ringgit weakening to RM3.319 against the Dollar (-0.9% YTD). Moving forward, we believe investors should go back to the basics and focus on domestic news-flows driven counters as well as consistent performer stocks in this current volatile market. Although the FBMKLCI’s total return fell 3.3% MoM to settle the month of January at 1,804.03, our On Our Radar (OR) tracker recorded a 3.1% gain over the month. Last month, we introduced two new Trading Buy stocks – namely BERJAYA AUTO and V.S. INDUSTRY while assigning a Not Rated rating to KHIND HOLDINGS.

Slow start to the new year. In view of the shorter working days, we started January with the introduction of merely two new OR stocks with Trading Buys, namely BERJAYA AUTO (FV:RM1.92); and V.S. INDUSTRY (FV: RM1.42) on the convictions that traders may be drawn by their value. Meanwhile, we also attached a NOT RATED rating on KHIND HOLDINGS after a company visit due to its current rich valuation. Nevertheless, we do not discount a revisit should value re-emerge going forward. Although some of our Trading Buys recommendations have performed well and exceeded our target prices, we have yet to close these trading positions while awaiting for the release of their upcoming 4QCY13 earnings report cards. We will reassess our Trading Buy calls post the result review.

A jittery month. The global as well as the local market experienced one of the biggest volatile trading months in January amid signs of slowing growth in China and as the Argentinean government’s decision to allow the peso to devalue triggered a rout in emerging-market currencies. Meanwhile, the stimulus cut imposed by U.S. Federal Reserve to reduce its monthly bond purchases by another USD10b to USD65b coupled with manufacturing gauge retreating more than estimated, raising concern over the strength of growth in the world’s largest economy saw the Dow Jones and S&P 500 total returns sank 5.2%, and 3.5%%, respectively, in January (or -6.7% and -4.9% on a YTD basis). Similarly, the FBMKLCI also retreated by 3.4% or 81.08 points in January and 4.7% YTD.

When in Doubt, go back to THE BASICS. Moving forward, while we believe the market volatility will be likely to continue, at least in the short term, investors should go back to the basics and focus on domestic news-flows and development driven blue-chip counters, such as TENAGA, SKPETRO and RHBCAP. Meanwhile, for conservative investors, defensive stocks or consistent performer stocks (such as NESTLE; AMWAY; and BAT) may proved as ideal core holdings. Having said that, we believe a good mix of big and small caps could also provide moderate return under the current scenario. Timing wise, we believe the ideal ‘Buy On Weakness’ level is below 1,770 or 6% discount to our FY14 index target of 1,890.

Positive average total monthly return despite market volatile. We have a total 24 Trading Buy in our OR tracker portfolio after adding two new Trading Buy last month. Against the market where the benchmark index retreated by 3.4% MoM, our OR tracker portfolio recorded a positive average total monthly return of 3.1% in January. Top of the list were ASIA FILE (+17% MoM); PESTECH (+14%); and SBC CORP (+13%) while FIBON (-11%); PINTARAS JAYA (-6%); and EKOVEST (-5%) were the top underperformers. On the other hand, our newly added two Trading Buy call stocks – BERJAYA AUTO and V.S. INDUSTRY performed diversely with the former’s share price advanced by 12% since the introduction while the latter fell by 4% in January.

Source: Kenanga