The local market is expected to continue with its consolidation mode with the benchmark index range-bound technically between 1,840 and 1,880 this week. As we are entering the 1QCY14 reporting season, the upcoming earnings results should give a better picture on the market direction for the next two months before we enter the 2H14. Last week, given the sizeable small caps exposure in our model portfolios, all our three portfolios underperformed the FBMKLCI by 174-405bsp WoW. In spite of this, THEMATIC (+189bsp) and GROWTH (+73bsp) Portfolios continued to outpace the key index on YTD basis while DIVIDEND YIELD Portfolio (-158bsp) remained an underperformer.

Still stuck within the range. Despite the benchmark index holding well last week as opposed to the small caps, the FBMKLCI is likely to continue to trade range-bound this week, given that it failed to break the 1,880-resistance level. The technical support for the barometer index remains at 1,840. The third liners and small caps are likely to face continuous profit-taking activities following the strong rally in the past month. What relief it was to the market as the just concluded FOMC meeting last week came in within market anticipation as Fed will trim its asset purchase by another USD10b to USD45b a month. This should be positive to sentiment in the equity market.

Small caps faced sell down last week, with four counters hitting limit down last Monday. However, the broader market was still holding ground with FBMKLCI raking in a meagre weekly gain of 8.10pts or 0.44% to end the week at 1,869.38. This was mainly driven by DIGI (+3.36%), SIME (+2.26%) and IOICORP (+2.48%). PBBANK (-1.58%) was the biggest loser after it revealed plan to raise funds via a rights issue while other financial heavyweights such as CIMB (-1.19%) and MAYBANK (-0.70%) also topped the losers’ list. On Wall Street, the US stocks generally closed higher on better-than-expected earnings but concerns on the upcoming economy data which will be released this week limited gains.

All portfolios underperformed the market. Given the sizeable small cap exposure in our model portfolios, the current weak sentiment in small cap worked against our portfolios which saw all portfolios retracting two-third to half of their YTD gains last week. GROWTH Portfolio was badly hit with YTD total returns value contracting 3.61% over the week to 3.51% while THEMATIC Portfolio also saw its YTD total returns reduced to 4.67% after a 2.53% decline in fund value over the week. Nonetheless, these portfolios still outperformed the 30-stock index as the latter’s YTD total returns were 2.78%. The DIVIDEND YIELD Portfolio which is relatively conservative with only one small cap exposure posted a lesser drop in fund value of 1.30% WoW, trimming its YTD total returns to only 1.20%.

Blamed it on small cap exposure but… The small cap pick – FIBON (-5.10%) – and two alpha stocks – RHBCAP-CR (-10.64%) and REDTONE-WA (-5.94%) – were the main culprits for the underperformance of our model portfolios. FIBON caused a 4.63% WoW decline in invested value for all three portfolios while RHBCAP-CR and REDTONE-WA reduced their investment values by 11.36% and 7.14% WoW in THEMATIC and GROWTH Portfolios, respectively. Although these small caps had limited our gains last week, we still believe a well-balanced exposure between heavyweights and small caps in our portfolios should help to weather the volatile market conditions and maximise returns. We remain optimistic on these investments which promise good returns on the back of excellent prospects.

Source: Kenanga