The 2014 FIFA World Cup is starting this week, which may not augur well for equity market, at least in terms of trading volume. Not helping is the lack of fresh leads and the uninspiring 1QCY14 earnings report card which failed to spur the market interest. With these, the local market is likely to be quiet within a tight range bound with downsize risk capped at 1,830-1,835. Post 1QCY14 results season, our end-2014 Index Fair Value has been upgraded to 1,915 from 1,890 previously. In all, we still prefer “Buy on Weakness” strategy with an ideal buying level <1,835, which is at a 6% discount to consensus Index Target of 1,950. Portfolio’s performance wise, only THEMATIC Portfolio posted losses WoW and underperformed the key index while the other two portfolios still managed to beat the FBMKLCI with weekly gains of 0.41%-1.36%. On the other hand, all our three portfolios still outpaced the benchmark index by 132-720bps on a YTD basis.

A quiet week expected ahead of the World Cup fever. While the key index is still hovering above the long-term trend line and 50-day SMA line, we may not discount the possibility of a short-term correction due to lack of catalyst, especially now that the focus will likely switch to FIFA World Cup, which kick-start this Thursday. However, we still believe the strong underlying excess liquidity condition should limit downside from here at 1,830-1,835. In addition, the European Central Bank has cut their interest last week, which could lead to European funds investing in higher interest regions, i.e. emerging markets, for better returns. This should provide some buying support to the local market. “Buy on Weakness” is still our preferred investment strategy with an ideal buying level <1,835, which is at a 6% discount to consensus Index Target of 1,950.

A lacklustre week as expected. The local market had a range bound week with the FBMKLCI trading at a tight 10pts-band over the week due to lack of fresh leads to excite the market following an uninspiring 1QCY14 results report card. In fact, the foreigners turned into net sellers with the start of the week after 22 days of straight net buyers. The foreign fund flow was hovering between net inflow and outflow for the remainder of the week before turning into a net outflow of RM99.8m last Friday. At last Friday’s closing bell, the FBMKLCI lost 0.57% or 10.68pts to settle at 1,862.70. The underperformance of the market was mainly driven by PBBANK (-3.79%), TENAGA (-2.98%) and CIMB (-1.77%). On Wall Street, US stocks started the week with continuous buying momentum extended from the previous week’s strong gain. Amidst some profit-taking activities, both DJIA and S&P 500 closed at fresh highs for the third time in the week last Friday after the European Central Bank’s stimulus boosted confidence in global market.

Performance of our model portfolios was mixed. Given the profit-taking on RHBCAP-CW (-4.17%) and the weakness in heavyweight TENAGA, THEMATIC Portfolio declined by 0.89% which underperformed the barometer index’s total return of -0.43%. However, the gains in IJM (+4.63%) and MITRA (+4.76%) sent fund values of our DIVIDEND YIELD and GROWTH Portfolios by +1.36% and +0.41% higher, respectively. Nonetheless, THEMATIC still topped the YTD total returns with 10.16% returns against the FBMKLCI’s total returns of a mere 2.96%. On the other hand, the other two portfolios also outpaced the 30-stock index with GROWTH Portfolio expanded 8.75% YTD while value of DIVIDEND YIELD rose 8.75% YTD.

Construction companies led the portfolios higher. MITRA was the main contributor to the DIVIDEND YIELD Portfolios in which the invested stock fund value rose 5.16% or RM1,000 over the week. We released an OR review on MITRA last Thursday as our construction analyst believes that this small cap builder is still undervalued although its share price has risen 14% over the week given its explosive 30%-50% 2-year earnings growth story on the back of its strong RM1.1b order-book. As at last Friday, at the closing price of RM0.88/share, it still offers 28% upside to our fair value of RM1.13/share. On the other hand, IJM contributed RM930 weekly gain to the GROWTH Portfolio ahead of the suspension of its share trading over speculation of its property arm, IJMLAND being privatised. Our analysts view this is a win-win situation for both IJM and IJMLAND as it will boost IJM’s bottom-line by wholly owning the property arm while shareholders of IJMLAND can realise the intrinsic value of the company.

Source: Kenanga