The FBMKLCI is expected to trend higher this week and may also retest its all-time high of 1,882 in the near-term (underpinned by ample domestic liquidity and the return of foreign funds) should the 1,850 key resistance-turn-support level is surpassed and incoming key economic data are within expectations. The THEMATIC portfolio was the only portfolio that outperformed the index last week. YTD, THEMATIC portfolio continued to take the lead and registered +6.5% return (vs. +1.5% total return in the FBMKLCI), followed by GROWTH (+4.6%) and DIVIDEND YIELD (+1.1%) portfolios.

Paving way to move up higher. We expect the FBMKLCI to trade higher this week, underpinned by the return of foreign fund inflow and ample domestic liquidity. With that, we believe the downside risk to the benchmark index is limited for now should the key economic data (i.e. China’s March PMI (Tuesday); US factory order (Wednesday); US March’s unemployment data and Malaysia’s trade balance (Thursday)) scheduled for release this week meet expectations. Technically speaking, the FBMKLCI is gradually turning bullish on improving sentiment momentum. Sustaining above the 1,850 key resistance-turn-support level would provide a good base for the index to retest the all-time high of 1,882.

Better-than-expected FBMKLCI performance last week. The return of foreign funds (+RM562m as of last Thursday) helped to boost the FBMKLCI’s stronger-than-expected performance last week. The market ascent clearly outdid our earlier expectations of a range bound trading mode with downside bias. At last Friday’s closing bell, the barometer index closed 30.25 points or +1.7% WoW higher to settle at 1,850.73, mainly led by SAKP (+6.7%), GENT (+3.9%) and DIGI (+3.9%). On the US front; the Dow Jones index was trapped in a tight range of +/-275 points and closed at 16,323.10 (+0.1% WoW) last Friday due to the lack of key catalysts and persistent geopolitical tension in Ukraine.

Switching from RHBCap to RHBCap-CR. Over the week, we have sold our 1.5k RHBCap shares at RM8.35/share (and make a small profit of RM105 each within the T+3 contra period) each from both the Thematic and Growth Portfolios and switched over the funds into RHBCap-CR, which we believe this instrument will provide better leverage to its mother share. The RHBCap–CR was issued by CIMB Bank Berhad on 17th of February 2014 and will expire a year later. The strike price of the call warrant to the underlying share was set at RM7.50 with a conversion ratio of five RHBCap-CRs for one RHBCap share. RHBCap is one of the laggard banking stocks in 2013 (+2.7% vs +14.8% average return in the banking sector). Despite the share price advancing 5.7% YTD (vs. -3% in the banking sector), we believe, there is still room for growth. We have a fundamental target price of RM8.75 for RHBCap, implying a fair value of RM0.295 (or 34% upside) for its CR, based on Black Scholes Option Pricing model.

Locked in profit on TM at RM5.93/share. We have decided to lock in our profit on TM, where we have 2,500 shares in the DIVIDEND YIELD portfolio, at last Friday closing price of RM5.93/share, after the company announced a capital injection plan into P1. While we are neutral on the proposed investment agreement, the market perception was generally negative and sceptical on P1’s prospects. The disposal of TM shares led to a gain RM1,350 or +10.0% return over a three-month investment horizon.

THEMATIC portfolio outperformed the FBMKLCI last week and gained +1.9% WoW (vs. +1.7% WoW gain in FBMKLCI). Despite recording a positive return of +1.6% WoW in GROWTH and +1.02% WoW gain in the DIVIDEND YIELD portfolio, these returns were slightly lower than the benchmark index. The positive performance of all our portfolios last week were mainly fueled by REDTONE-WA (+6.5%), RHBCap-CR (+6.8%) and DIGI (+3.8%)

Source: RHB