The FBMKLCI is expected to face some selling pressures in coming weeks in view of the lack of nearterm catalyst amid stretched valuations. Nevertheless, the ample domestic liquidity coupled with continued foreign funds inflow could provide some supports should our view is proven right. We believe buying interest could potentially emerge when FBMKLCI approaches the 1,830 level, a 6% discount to the consensus Index Target. In all, we have a mixed weekly performance for our model portfolios with DIVIDEND YIELD Portfolio continue to underperform the FBMKLCI while THEMATIC and GROWTH Portfolios continued their winning streak. On YTD basis, THEMATIC portfolio has recorded more than 10% total return while GROWTH portfolio outperformed by 246 bps. The DIVIDEND YIELD portfolio, however, is lower by 23bps as compared to the 30-stock index.

Near-term correction expected. We expect the local equity market to face some correctional pressures in coming weeks in view of: (i) lack of corporate earnings surprises in 1QCY14 report cards (Out of the 128 companies under our coverage, 47% came in within expectation while 21% exceeded estimates), which provided limited room for research houses to upgrade their FBMKLCI target prices, (ii) FBMKLCI’s historical volatility has stayed at the lower end ranges, which is not sustainable statistically speaking, and will eventually spike up causing corrections based on the historical trend, (iii) discount between FBMKLCI and its consensus Index Target (1,947) is now approaching the 3% hurdle level, suggesting limited upside from here based on our earlier discount trend of FBMKLCI to consensus Index Target study. Having said that, the strong excess liquidity in the local banking system coupled with continued foreign inflows could limit the potential downside. Should any correction happen, we believe, buying interest could likely emerge when the FBMKLCI trades near the 1,830 level (or 6% discount to the consensus Index Target).

Upward trend resumed at last week. The market started the week with continues profit-taking activities but managed to resume its upward trend since last Wednesday and closed near the week high. Foreign investors continued to be the net buyer with a total net inflow of RM967m as of last Friday, marking the 22nd straight days of net buying. At last Friday’s closing bell, the FBMKLCI climbed 4.16 points or 0.22% WoW to 1,873.38. Public Bank (+8.5%); Petronas Dagangan (+7.4%) and Sapurakencana (+1.9%) were the top three index leaders last week while the laggards were Maxis (-4.8%); Felda (-7.8%) and YTL (-5.8%). On Wall Street, US stocks continued to trade higher WoW, underpinned by supportive economic data recently and expectations of monetary easing by the European Central Bank.

Gain some, lose some. Both THEMATIC and GROWTH portfolios outperformed the 30-stock index last week and recorded 4.9% WoW and 2.7% WoW gain, respectively, in contrast to the FBMKLCI (0.2% WoW). The former was mainly driven by TSH (which share price climbed 16% WoW) and RHBCap-CW (14% WoW), while the latter was led by RHBCap-CW as well as Pestech (5% WoW). The DIVIDEND YIELD portfolio, however, suffered 0.6% loss in the total invested amount, no thanks to the lower share price performances in both MITRAJAYA (-2% WoW) as well as BJTOTO (-1% WoW).

Double-digit return YTD in THEMATIC portfolio. The strong performance of TSH (16.3% WoW) and RHBCap-CW (14.3% WoW) share prices have boosted our THEMATIC portfolio total YTD return to 10.64%, the first double-digit total return since January. We believed the strong share price performance in TSH last week was mainly due to its decent 1Q14 results. TSH’s share price has advanced 37% YTD and closed at RM4.00 last Friday, which is not far off as compared to our target price of RM4.10. With a limited capital upside from here, we have decided to lock-in our profit in TSH based on last Friday closing price. Meanwhile, the GROWTH portfolio’s total return recorded at 8.39% since 3rd of January while DIVIDEND YIELD portfolio gained 3.17%, 23bps lower than the benchmark index of 3.40%.

Source: Kenanga