The FBMKLCI is expected to trade in a sideway range ahead of the upcoming 4th U.S. FOMC meeting. Any unfavourable monetary policy from the Fed could potentially increase the global market volatility. The 30-stock index is expected to be trapped within the 1,855-1,882 range before the conclusion of US FOMC meeting. Last week, we have added 80k SKP-WA shares each into all our portfolios, where we believe it could provide strong capital upside should the mother share (SKP-RESOURCES) hit the consensus target price of RM0.56. Our model portfolios were mixed last week with DIVIDEND YIELD portfolio being the only outperformer. On a YTD basis, all our three portfolios still outpaced the benchmark index by 134-681 bps.

Trapped in a sideway range. The FBMKLCI is still expected to be trapped in a range-bound sideway this week, awaiting a clearer policy direction post the US FOMC meeting scheduled to be held 19th June. Market is expecting the Fed to maintain its rate decision (at 0.25%) but continue with the QE tapering, albeit at a slower pace (USD35b vs. USD45b in April). Failure to meet with market expectations could result in higher trading volatility. The benchmark index is expected to be trapped in the sideway consolidation mode, at between the 1,855 to 1,882 range, amid low trading volume before the conclusion of US FOMC meeting.

Cheered by Wall Street performance last week. The local market resumed its momentum last week, thanks to the strong performance from Wall Street which was mainly led by better-than-expected US economic data. At last Friday’s closing bell, the FBMKLCI climbed 0.75% WoW or 14.04 points to settle at 1,876.74. The top three index leaders last week were SKPETRO (5.9%), DIGI (3.3%) and GENTING (2.0%). On Wall Street, US stocks started the week with buying momentum extended from the previous week’s strong gain with both DJIA and S&P 500 indexes surging to new highs. The positive trading momentum, however, was partially curbed at the latter part of last week, as the World Bank reduced its global growth forecast to 2.8% (from 3.2% due to a harsh US winter and the impact of the Ukraine crisis) for 2014 coupled with escalating geo-political risk in Iraq. These concerns have caused some selloffs in the market and led the DJIA and S&P 500 index to lost 0.88% WoW and 0.68% WoW, respectively.

Performance of our model portfolios was mixed. Given the profit-taking on IJM (-5.7% WoW), GROWTH Portfolio declined by 0.55% which underperformed the barometer index’s total return of +0.75% WoW. The THEMATIC portfolio, meanwhile, underperformed the FBMKLCI, albeit its fund value climbing by +0.49% WoW, thanks to better performance in DIGI. On the other hand, our DIVIDEND YIELD portfolio fund value extended by 0.9% WoW, mainly driven by stronger share price performance in DIGI and MITRA (+1.7%). On a YTD basis, all our model portfolios managed to outperform the 30-stock index by 134-681 bps with THEMATIC portfolio taking the lead (+10.6%), followed by GROWTH (+8.5%) and DIVIDEND YIELD (+5.09%).

Added SKP-WA into all our portfolios. We have added 80k SKP-RESOURCES WARRANT (SKP-WA) @ RM0.10 per share each to all our Portfolios on last Friday. The recent meeting with management indicated that the group is set to record strong earnings growth over the next three-year, thanks to the capacity expansion backed by escalating order from its key customer, Dyson. The strike price of SKP-WA is RM0.45/share and will expire on 27th of June 2017. The warrant has a conversion ratio of 1:1 (1 warrant for 1 mother share) and total outstanding shares of 180m. Consensus is valuing SKP RESOURCES at RM0.56/share, implying a RM0.17 fair value for its Warrant (or 70% capital upside from here) based on Black Scholes model.

Source: Kenanga