While the technical chart still points to a long-term uptrend for the market, we are cautious for 3Q14 as a short-term pullback is possible on stretched valuations and seasonality. We still PREFER a “Buy-on-Weakness” strategy with an ideal buying level of below 1,835. This week, the local market is expected to range bound between 1,872 and 1,889, and we advocate investor to “Sell-on-Strength” should the index rally to above 1,890. Performance-wise, our three model portfolios performed poorly, underperformed the FBMKLCI by 12-199bps after a strong performance previously. However, our portfolios still outperformed the benchmark index by 801-1,696bps on YTD basis with GROWTH Portfolio replacing THEMATIC Portfolio as top performer.

A range bound week ahead. The local market held on well last week which implied that the relative strength of the benchmark index remains intact. While the technical chart showed the long-term upward trend remains in place, the shortterm trend of the key index is still range bound within a range of 1,872 to 1,889. Fundamentally, we remain cautious for 3Q14 due to seasonality, stretched valuations and lack of fresh leads, although the Malaysian equity market being a liquidity driven market is supported by the ample underlying financial liquidity. We see a short term pullback which could be a buying opportunity. Thus, our investment strategy for 3Q14, which we released last Tuesday, is Buy-on-Weakness with ideal levels of <1,835. Should the market rise beyond the 1,890 level, we advise investors to Sell-on-Strength. Key event to watch this week is the BNM’s Monetary Policy Committee meeting which will be held on Thursday where market consensus is expecting a 25bps interest hike but our economist believes that there is nochange in interest rate to mitigate the cost-push effect from the implementation of GST next year.

Slowly climbed higher. As expected, the trading volume for the local market remained lacklustre last week as market participants probably spent more time and energy on late night World Cup matches than the stock market. Nonetheless, the FBMKLCI managed to inch up or down by few index-points each trading day. The foreign fund flow was also fluctuating between net inflow and outflow before turning net outflow of RM29.5m last Thursday. At last Friday’s closing bell, the barometer index closed 3.98% or 0.21% higher to settle at 1,884.91. TENAGA (+2.63%) was the main market mover last week followed by PBBANK (+1.53%) and IHH (+2.28%). CIMB (-1.78%) was the biggest loser after the market reacted negatively to the news of Nazir Razak relinquishing his CEO role to become a non-executive Chairman. On Wall Street, the US stocks rose higher on several encouraging economic data with both DJIA and S&P 500 closing the week with 3rd-straight record high before their Independent Day last Friday.

Our model portfolios poorly performed. After am impressive performance in the previous week, all our three model portfolios underperformed the broad market due to lacklustre showing by the small caps such as FIBON (-6.52%) and REDTONE-CW (-4.90%). The THEMATIC Portfolio is the worst performer last week which posted total fund value contraction to 20.03% YTD after 1.78% WoW decline while YTD total returns for DIVIDEND YIELD Portfolio was also reduced to 12.31% after a 0.65% weekly drop in value. This is against a weekly gain of 0.21% registered by the FBMKLCI, boosting its YTD total returns to 4.30%. However, the GROWTH Portfolio managed to rake in a meagre 0.09% weekly gain, pushing YTD total returns higher to 21.26%, the top YTD gainer. This was largely helped by PESTECH as it rallied 8.39% WoW.

Small cap led the show. While small cap and alpha stock, FIBON and REDTONE-CW led the portfolios lower, PESTECH posted handsome gains in the past weeks ahead of its share which will go “ex-bonus” this Tuesday. In fact, the GROWTH Portfolio fund value had risen 6.66% since the inclusion of 3,000 PESTECH shares in Mar-14. We had upgraded our TP to RM7.27 last week as believe investors are willing to pay higher price on the back of the upcoming contract awards. Meanwhile, we added new stock MAGNI into all our portfolios last Monday with 6,000 shares in THEMATIC Portfolio and 5,000 shares each in GROWTH and DIVIDEND YIELD Portfolios, respectively, for its undemanding valuation and earnings track record.

Source: Kenanga