We expect the FBMKLCI to trade within a cluster of key support and resistance points between 1,813 and 1,833 this week but with a downwards bias. Emerging markets are expected to face some selling pressure as the recently concluded U.S. FOMC meeting hinted that the central bank’s stimulus program could end this fall and interest rates could start rising in early 2015. Performances of our three model portfolios were marginally better than the FBMKLCI by 8-25bps WoW but outperformed by 75-429bps on YTD basis.

Range bound with downside bias. We expect the FBMKLCI continue to trade within a cluster of key support and resistance points of between 1,813 and 1,833 this week but with a downwards bias in view of: (i) the lack of key domestic catalysts and (ii) persistent geopolitical tension in Ukraine. Meanwhile, the decision of further quantitative easing by the U.S. Federal Reserve to trim its monthly bond purchases by another USD10b to USD55b will continue to stimulate funds flow back to U.S. and thus putting pressure on the emerging markets. Technically speaking, our short-term outlook on the FBMKLCI remained largely neutral with downside bias, in view of the fragile momentum indicators. In order to reverse the current sideways mode and move higher, the key index will have to break above the 1,826-1,833 tough resistance levels.

Another lacklustre week. The local market experienced its 5th-straight week of consolidation mode last week on lack of positive news flow, trading at the tight range of 1,802-1,821 level. At last Friday’s closing bell, the barometer index closed 15.36 points or 0.85% WoW higher to settle at 1,820.48, mainly led by PUBLIC BANK (+1.3%), DIGI (+2.8%) and PCHEM (+2.3%). Last week, Bank Negara Malaysia has taken a more conservative view on the country’s economy and expects the GDP to grow at 4.5%-5.5% in 2014 (vs. 5%-5.5% as envisaged by the Federal Government in the Economic Report 2013/14 released last year). The wider range of BNM forecast suggested that the central bank is taking into further consideration the uncertainties pertaining to the economic situation in the developed economies rather than the downside risks of a moderating domestic demand. On Wall Street, stocks turned lower after the latest FOMC meeting where Chairlady Janet Yellen said the central bank’s stimulus program could end this fall and benchmark interest rates could rise six months later. The Fed’s statement also said officials predicted their target interest rate would rise to 1% at the end of 2015 (from 0.25% currently) and 2.25% in the subsequent year. The rates rise concerns, however, was offset by the better leading economic indicators, leading the S&P 500 to climb 1.38% WoW to 1,866.52 and the Dow to improve by 1.48% WoW to 16,302.77 on last Friday.

Adding PESTECH and RHB CAPITAL into portfolios. Over the week, we added 3k PESTECH shares into our Growth portfolio at RM4.24 per share. We have recently upgraded our target price for PESTECH to RM4.93/share due to its good earning's visibility and contract flow momentum coupled with relatively low share liquidity. We believe our 3-year earning CAGR forecast of 57% is not overly optimistic given its current order book of RM700m coupled with its high tender book of RM1.33b. Meanwhile, we also added 1.5k RHB CAP stocks each into our Thematic and Growth portfolios at last Friday closing price of RM8.28/share.

All our model portfolios outperformed the FBMKLCI last week on a week-on-week basis, with the GROWTH recording a +1.1% WoW gain (vs. 0.85% in the FBMKLCI) followed by the THEMATIC (+1.1% WoW) and DIVIDEND YIELD (+0.9% WoW). The better performance was mainly fuelled by REDTONE-WA (+5.7%), DIGI (+2.8%) and TM (+2.1%). YTD, THEMATIC portfolio continued to take the lead and registered +4.0% return (vs. -0.31% total return in the FBMKLCI), followed by GROWTH (+2.3%) and DIVIDEND YIELD (+0.4%) portfolios. 

Source: Kenanga