The local market experienced its second straight week of consolidation last week as the lacklustre US market weighed on market sentiment, although foreign funds continued to buy into the local market. Lack of fresh leads kept investors away from the heavyweights, but the smaller cap stocks attracted some buying activities. This week, the FBMKLCI is set to further consolidate with downside support at 1,842. However, our bullish view on longer-term remains as the ample domestic liquidity will provide support to the market. We adhere to our “Buy on Weakness” (B.O.W.) strategy should the index drop below 1,815, which is the ideal B.O.W. level. Portfolio performance wise, we had a mixed week with only the DIVIDEND YIELD Portfolio outpacing the barometer index by 32bps, which was mainly boosted by BJTOTO.

To consolidate further this week. The market is set to trade sideway this week given the lack of fresh leads from the local market while the sell-down in Wall Street will continue to suppress market sentiments. Having said that, we still believe that the barometer index is still in an uptrend bias over the mid-term, underpinned by continued foreign fund inflows and ample domestic liquidity. In fact, the small caps performed better than the 30 index-linked stocks in the past weeks. Technically speaking, the index downside support is at 1,842 while the RSI has started to weaken from the overbought territory. So long as it holds above 1,842, the benchmark index would retest 1,870-1,880 levels. Otherwise, it may see further corrections. Even so, we will still adhere to a “Buy on Weakness” strategy should the index drop below 1,815.

Another flattish trade last week. The local market experienced its second week of consolidation as the foreign fund inflow was offset by external factors, which kept investors at the sidelines. As of last Friday, foreigners were the net buyers for 5th consecutive day with a total weekly net inflow of RM414m. However, the local market sentiment was affected by Wall Street performance where stocks, especially biotech and internet stocks, tumbled on stretched valuations concerns. Not helping was the USD which hit its three-week lows against the JPY. At last Friday’s closing bell, the FBMKLCI lost 3.95pts or 0.21% WoW to settle at the psychological support level of 1,852.66. The previous week’s top market mover PBBANK (-5.29% WoW) was the main loser on heavy profittaking. Other big caps that led the index lower were SKPETRO (-6.45%) and AXIATA (-0.82%). However, the previous week’s main loser TENAGA (+4.94%) was higher on bargain hunting activities.

Mixed portfolios performance. Although a strong rebound in TENAGA helped to push the THEMATIC and GROWTH portfolios up by 5.07%, the sell-down on alpha stocks such as REDTONE-WA (share price: -5.71% WoW) and RHBCAP-CR (-6.52%) sent these two model portfolios into the negative territory. THEMATIC Portfolio lost 0.47% WoW of its fund value while GROWTH Portfolio dipped 0.47% over the week. DIVIDEND Portfolio was the only model portfolio which outpaced the FBMKLCI with only a 0.87% weekly gain, against FBMKLCI’s -0.21%, mainly helped by BJTOTO which gained 0.76% over the week. However, the DIVIDEND YIELD Portfolio still lagged behind the market with only 0.87% YTD total returns, as opposed to the benchmark index’s +1.58%, while THEMATIC Portfolio topped the gainer list with 5.23% YTD total returns followed by GROWTH Portfolio’s YTD total returns of 3.98%.

Alpha stocks weighed on heavyweight’s gains. Despite the poor performance of the two alpha stocks – REDTONE-WA and RHBCAP-CR which hit the aggressive and growth portfolios, we still see these two stocks as good leverage to their respective underlying stocks in view of the potential upsides. We still like RHBCAP as it is a laggard in the banking sector with good potential upside while REDTONE will continue to attract buying interest on news of the emergence of a prominent businessman to acquire a substantial stake in company.

Source: Kenanga