We expect the local market to enter a healthy consolidation mode this week following the moderate 2.3% rally over the past two weeks. The on-going 4QCY13 earnings season is expected to continue to hog the limelight in the absence of external major negative surprises. Our THEMATIC (+3.2% WoW) and GROWTH (+1.4% WoW) portfolios managed to outperform the FBMKLCI last week while the DIVIDEND YIELD portfolio performed in tandem with the benchmark index with a +0.6% WoW gain. YTD, the THEMATIC and DIVIDEND YIELD portfolios have outperformed the FBMKLCI by 49-77 bps while the GROWTH portfolio has narrowed its losses but still underperformed the index by 59 bps.

Expecting a healthy consolidation mode this week. Following the moderate rally of 2.3% over the past two weeks, we expect the market to enter into a consolidation mode this week pending the emergence of new catalysts. Key global economic events to watch out for include: (i) US. FOMC minutes, (ii) February’s initial jobless claims, and (iii) German’s February PMI Manufacturing (all scheduled to be released on 20th of February). Failure to meet the consensus expectations may raise concerns on the global economic outlook. For the domestic equity front, the release of 4Q13 corporate earnings will be the key event to watch over the next two weeks. Notable corporate results this week include AMBANK (where it will be released on Monday), BAT & KLK (Wednesday) and Axiata (Thursday). Technically speaking, we expect the FBMKLCI to pause for a breather after the benchmark index failed to climb above the immediate key resistance at 1,826 last week. Readings from the indicator also showed that the FBMKLCI is losing its upward momentum; hence, a correctional healthy pullback is expected. The immediate support level is now pegged at 1,806, where the 20-days SMA coincides with the 100-days SMA, followed by 1,778 level next.

Wall Street continued marching higher. The US market has continued extending its gains on a big “V” shape rebound a week ago. The rally was mainly led by comments made by the new Fed’s chief Janet Yellen, who delivered her first public remarks, which stated that economic growth has strengthened and there is “broad improvement” in the labour market. She also repeated the Fed’s outlook for further stimulus reductions in “measured steps", adding that only a “notable change in the outlook” for the economy would prompt policy makers to slow the pace. Better-than-expected corporate earnings, meanwhile also managed to overshadow a drop in the retail sales. In addition, the U.S. debt ceiling was delayed after the House of Representatives voted to suspend the debt limit until March 2015. Both the Dow Jones and S&P 500 have rallied 2.28% WoW and 2.31% WoW, respectively, on speculation economic growth is strong enough to withstand further cuts to Federal Reserve monetary stimulus. Back home, most of the local companies that reported their respective 4QCY13 financial result thus far performed within or slightly above analysts’ estimates, supporting the FBMKLCI to climb 0.6% WoW or 10.78 points to 1,819.37, in tandem with the global equity markets. TNB (+2.2% WoW), IOI (+4.9%) and MISC (+4.7%) were the top index performers last week while BAT (-2.6%), SAKP (-1.3%) and AMBANK (-0.9%) were the top laggards.

THEMATIC and GROWTH portfolios gaining traction. Two of our model portfolios have outperformed the FBMKLCI last week on a week-on-week basis, with the THEMATIC recording a +3.2% WoW gain (vs. +0.6% in the FBMKLCI) followed by the GROWTH (+0.8% WoW). The DIVIDEND YIELD portfolio, meanwhile, performed in line with the broader market performance. Last week, gains were mainly led by our small cap investments such as TSH (advanced 7.5% WoW) and REDTONE-WA (+2.7% WoW) amid a healthy return on our big cap stock picks (i.e. DIGI (+1.8% WoW) and TENAGA (+2.2% WoW)). YTD, THEMATIC portfolio has risen as the top performer and recorded -0.07% return (vs. -0.84% in the FBMKLCI), followed by DIVIDEND YIELD (-0.35%) and GROWTH (-1.43%) portfolios.

Source: Kenanga