Overall, June-14 was another good month for global equity markets. Global indices posted marginal gains, with the US market continuously setting record highs, amid more positive US economic data being reported. The Dow Jones Industrial Average closed the month at yet another all-time high level of 16,826.6 (+0.7% MoM), followed by strong showing on the S&P 500 which ended the month on record high level of 1,960.23 (+1.9%). Across Europe, the FTSE 100 Index and European Stoxx 50 however dipped 1.5% and 0.5% MoM, respectively. This is in contrast from the Nikkei 225, which surged 3.6% MoM on several strong corporates earnings being reported. Mixed results were reported for the South East Asian region, which witnessed Singapore’s STI falling by 1.2%, Thailand’s SET index closing 4.9% higher and Indonesia’s JCI dropping 0.3% lower for the month.

FBM KLCI’s June Performance. On the local front, the benchmark FBMKLCI eked out marginal gains of 9.33 points (+0.5% MoM) to end the month at 1,882.71. The past month was an exceptionally quiet month for the domestic market, with the index just hovering between a tight range of 1860 to 1,892. Market sentiment was muted, due to: (i) school holiday season, (ii) lack of corporate earnings surprises in 1QCY14 reporting season, (iii) lingering geopolitical uncertainties in Iraq & Ukraine, and (iv) on-going FIFA World Cup. Market players continued to hold a “Wait-and-See” approach throughout the month while the local institutional funds started to chalk up positions in their mid-year window dressing activities towards the end of the month. Thus, the FBMKLCI index charted into a fresh record high level of 1,892.33 on 24th June 2014. Meanwhile, on a monthly basis, although foreigners remained net buyers for the 3rd consecutive month, total net inflows dwindled to RM507m vs. May-14’s RM2.9b.

On Our Technical Watch Monthly Review. During the month, we remained very selective in our technical recommendations which in line with our view that June would be a slow month due to World Cup fever. Of the 29 technical stock highlights we made during the month, only 2 of them were outright BUY recommendations (SKPRES, INARI), 1 of them a SELL recommendation (MNRB), while the remaining 26 stocks were NOT RATED. We recommended a technical buy on SKPRES and INARI, after they have overcome their strong resistance levels.

Tracker Review. Despite an overall unexciting month for the local equity market, our realised portfolio managed to register a 9.7% return which outperformed the benchmark FBMKLCI by 9.0 percentage points for the month. Gains on the tracker were recorded by TSH (+22.7%) and MPI (+15.1%), which was more than sufficient to mitigate the stopped-out loss on SUNSURIA (-8.7%). SUNSURIA did not play out to our expectations, as the company decided to delay the acquisition of RM10.0b GDV property assets from their major shareholder, Datuk Ter Leong Yap. Having said that, we are very confident that we would continue to outperform the FBMKLCI in the following months, as we ended the month of June with +14.6% unrealised gains in our technical portfolio.

July Technical Strategy. Technically speaking, the general trend of the FBMKLCI still remains up as it is still trading in an uptrend channel. Immediate trend for the FBMKLCI would be sideways range bound between 1,875 and 1,889. However, with a lack of fundamental catalysts coupled with a seasonally weakest quarter in the year, we are doubtful on whether the FBMKLCI would be sustainable beyond the 1,889 resistance level. Risk-to-reward ratio is now leaning more towards the risk side. Thus, rather than to buy-in now, we would prefer to view any run-up as an opportunity to sell into strength. In contrast, the FBM Small Cap index is showing signs of bullishness following a technical resistance breakout last week. With trading volume remaining lukewarm, we expect more rotational plays in mid-and-small cap counters in the month of July.

Source: Kenanga