The market experienced yet another lacklustre trading phase last week, bogged down by lack of fresh leads coupled with rising geopolitical tension in Ukraine. Not helping were the foreign fund outflows with the impending FOMC meeting this Thursday which put investors on the defensive. Performances of our three model portfolios were mixed but still better than the FBMKLCI by 110-283bps WoW, thanks largely to the small cap/alpha stock. While the market is vulnerable to further downside in the coming weeks, “Buy on Weakness” remains as our preferred investment strategy given the strong liquidity in the domestic market. The ideal buying level should be <1,775, although aggressive investors may consider to start accumulating earlier at <1,815.

Downside biased? A few events such as (i) the upcoming FOMC meeting this Thursday with potential for another QE tapering, (ii) the prolonged Ukrainian crisis, and (iii) recent disappointing Chinese economy data, may continue to dent market sentiment or keep investors at bay, at the very least. Judging from the expansion of the 21-day Bollinger Band, it seems that FBMKLCI could have staged a downside volatility breakout, technically speaking. Coupled with the weak RSI (which has yet to turn oversold), we believe the index is now vulnerable to the downside. Support zone at 1,800/04 is crucial. Should this support zone give way, we do not rule out a potential retest of the recent low of approximately 1,770. Nonetheless, given the strong liquidity in the domestic market, “Buy on Weakness” is still our preferred investment strategy. The ideal buying level should be <1,775, which is at a 6% discount to our end-2014 Index target of 1,890. However, for aggressive investors, they may consider accumulating below 1,815 as the consensus Index target is higher at 1,930.

Another lacklustre week. The local market experienced its 4th-straight week of consolidation mode last week on lack of positive news flow. The FBMKLCI index started the week 10 points lower as investors reacted negatively to the disappointing Chinese trade data. The benchmark index closed the week on volatile trade, following another disappointing set of Chinese IPI data after a flattish trading pattern in midweek sessions. At last Friday’s closing bell, the barometer index closed 27.14 points or 1.48% lower to settle at 1,805.12, mainly led by MAYBANK (-2.46%), SKPETRO (-5.63%) and GENTING (-3.19%). On Wall Street, both Dow and S&P 500 tumbled on discouraging Chinese economy data and rising tension over Russian military presence in Ukraine.

Portfolios’ mixed performance still better than the market. While big caps faced selling pressure, in line with overall market performance, the small caps FIBON (+4.08%) and alpha stock REDTONEWA (+1.15%) helped to turn in positive returns to all our three portfolios. The GROWTH Portfolio was last week’s winner which raked in 1.42% weekly gain as compared to FBMKLCI which declined 1.48%. Meanwhile, THEMATIC Portfolio also registered positive weekly returns of 0.19% while DIVIDEND YIELD Portfolio lost 0.31%, no thanks to its relatively higher weighting of bigger caps compared to two other model portfolios. On a YTD basis, all our three portfolios reported positive total returns, as opposed to FBMKLCI’s -1.15%, with THEMATIC Portfolio (+3.39%) as top performer followed by GROWTH Portfolio (+1.42%) and DIVIDEND YIELD Portfolio (+0.10%)

Small cap the saviour. While the previous winners TM (-0.17%) and TSH (-2.74%), and other heavyweights like MAYBANK, DIGI (-0.59%) and BJTOTO (-2.26%) faced profit-taking activities, gains on small cap/alpha stock FIBON and REDTONE-WA helped to reverse the losses. Due to exposure to small caps, the three model portfolios managed to rake in positive returns thus far. Going forward, the well-balanced stock selections between heavyweights and small caps in our portfolios should help to weather the volatile market conditions and maximise returns.

Source: Kenanga