We expect the FBMKLCI to continue trading in a range bound mode this week, awaiting for fresh catalysts. Barring any unforeseen external risk factor (such as escalation of the Ukraine crisis), from a technical perspective, the 30-stock index could potentially surpass the immediate key resistance level at 1,833 given that the index has formed a strong support base at the 1,823 level. Two of our portfolios, the THEMATIC and DIVIDEND YIELD Portfolios beat the benchmark index by 77-141 bps WoW while the GROWTH portfolio remained largely unchanged. On YTD basis, the THEMATIC portfolio continues to lead and recorded +3.25% return (vs. +0.26% in the FBMKLCI), followed by GROWTH (+0.41%) and DIVIDEND YIELD (+0.33%) portfolios.

Sideway range bound trading. The U.S. February’s non-farm payroll and unemployment rate data would provide vital clues to the market for the upcoming FOMC decision, scheduled to be held on 20th this month. While the geopolitical risk in Ukraine may persist, at least in the near-term, the FBMKLCI is expected to continue to trade sideways this week, barring any unforeseen external factors. Technically speaking, the 30-stock index has managed to form a strong base at the 1,824 level (50-day SMA support line), suggesting that the index could potentially attempt to surpass its immediate resistance level at 1,833. Should this level is convincingly surpassed, the next key resistance is at 1,850 level. Strategy-wise, we continue to favour a “Buy on Weakness” strategy where we believe the 1H14 should offer better certainty in terms of monetary policy direction despite the QE tapering in the US. The ideal buying level should be <1,775 (6% discount to our index FV of 1,890). However, as the consensus index target is higher at 1,930, investors may consider accumulating shares at below 1,815 (also a 6% discount to consensus index target).

Market was trapped in a range bound mode. As predicted, the 30-stock index consolidated within a trading range of between 1,813 and 1,833. The trading sentiment was dampened in the early part of last week as the escalating political tension in Ukraine pressured jittery investors to cut their exposure in riskier assets. The geopolitical risk, however, has somewhat eased after comments from Russian President Vladimir Putin signalled that the Ukraine crisis would not escalate further. The positive statement immediately lifted market sentiment in the latter part of the week. At last Friday’s closing bell, the FBMKLCI settled at 1,832.26, or -0.2% WoW lower. Key index’s laggards were CIMB (-1.3%), PTG (-1.9%) and Axiata (-1.4). On the US front, the S&P 500 index broke its record high level twice and settled at 1878.04 on last Friday while the Dow Jones index finished at 16452.7 (+0.008% WoW).

THEMATIC and DIVIDEND YIELD portfolios gaining traction. Two of our model portfolios outperformed the FBMKLCI last week on a week-on-week basis, with the THEMATIC recording a +1.2% WoW gain (vs. -0.2% in the FBMKLCI) followed by the DIVIDEND YIELD (+0.6% WoW). The former was mainly fuelled by TSH (up by +8.6% WoW) and REDTONE-WA (+1.2%). The GROWTH portfolio, meanwhile, was flat on a week-on-week basis. YTD, THEMATIC portfolio continued to take the lead and registered +3.25% return (vs. +0.26% in the FBMKLCI), followed by GROWTH (+0.41%) and DIVIDEND YIELD (+0.33%) portfolios.

Telco and plantation stocks shine. Our stock pick in the telco (TM) and plantation (TSH) performed well last week. The former mainly benefited from the recently concluded 4Q13 results season where TM came in above consensus expectation. Meanwhile, we also believe that the escalating political tension in Ukraine caused some investors to increase exposure in the defensive stocks which benefitted the telco sector. On the other hand, TSH was lifted by the improved CPO outlook as well as the plantation sector upgrade led by the better-than-expected sectorial earnings.

Source: Kenanga