Sideway-choppy trading mode is expected to remain in this shortened week. Geopolitical tensions and corporate earnings report cards will continue to steal the limelight in the short-term. The FBMKLCI managed to stay above the 1,875 key-resistance last week but on moderate share volumes and value traded, suggesting that the current level may not be sustainable; thus the benchmark index may likely to consolidate with downside bias in coming weeks. “Buy-on-Weakness” strategy remains our preferred approach with an ideal buying level of below 1,835 given that the 3Q is always a seasonally weak quarter if not the weakest. Performance-wise, our three model portfolios outperformed the FBMKLCI by 131-34bps WoW. On YTD basis, all model portfolios continue to outpace the benchmark index by 855-1,918bps with GROWTH Portfolio retaining its top performer status.

Downward bias. The FBMKLCI is expected to remain in a sideway-choppy mode this week with increased downward bias followed Fitch Ratings affirming its negative outlook to Malaysia last week albeit keeping the country’s sovereign ratings at “A-“. Recent local corporate earnings were largely within our as well as the street expectations and thus, provided little impetus to drive the benchmark index further. While we are approaching the earnings reporting peak season in August, corporate earnings report cards will continue to be in investors’ limelight. Violence continued to escalate in the Gaza strip despite growing international calls for a cease-fire. Investors are also monitoring the uncertain situation in Ukraine, where fighting flared in the city of Donetsk. The recent MH17 tragedy also added to the already tense situation between the country and Russia.

Lacklustre week as expected. Local stocks ended mostly flat last week, with the FBMKLCI closing at 1,877.34 (0.2% WoW) last Friday. GENTING (+2.1%) was the biggest gainer among the index-link stocks, followed by ROTH (+4.1%) and TNB (+0.1%). The preliminary talks for a merger between CIMB, RHB Capital and MBSB have fanned speculations in the local market, where market observers believe other bank groups such as Maybank may also be interested to move to flex their muscles in the competitive world of local banking sector. Despite a potential M&A play in the local banking sector, foreigners turned net sellers again last week with a total net outflow of RM321m vs. the net inflow of RM356m the previous week. On Wall Street, the S&P 500 index hit another recordhigh last week, as investors cheered upbeat earnings from companies. About 68.5% (as of last Thursday) of the S&P 500 components have reported earnings above expectations, topping the long-term average of 63%, according to Thomson Reuters. On the revenue side, 63.1% have beaten forecasts, above the historical average of 61%.

Another solid performance from all our model portfolios, beating the barometer index by 131-34bps WoW. This was mainly driven by our investments in the small caps, namely REDTONE-WA (+6.9% WoW); PESTECH (+1.8%) and MITRA (+1.7%). THEMATIC Portfolio was the top gainer last week with 1.51% weekly gain, extending YTD total returns to 21.45% against the FBMKLCI’s weekly gain of 0.21%, followed by the GROWTH portfolio (+1.48% WoW to 23.17% YTD). DIVIDEND YIELD portfolio, meanwhile, posted YTD total return of 12.54% (vs. the FBMKLCI YTD total return of 3.99%) after adding 0.55% WoW gain last week.

REDTONE-WA continued to deliver. Redtone’s share price (+4.6% WoW) continued to gain limelight from investors last week, where we believe was mainly fuelled by a potential contract. Our recent conversation with management showed that the group is expected to see some interesting developments in the coming weeks. This includes the group’s foray into the teleradiology project which could contribute positively to its future earnings, if materialised. Meanwhile, we understand that MCMC is set to announce the outcome of the public cellular service tendering process under the TIME 3 extension project that is worth c.RM800m, and we believe, Redtone stands a fair chance of participating in the project. The strong performance in Redtone has led its warrant (Redtone-WA) to continue gaining (+6.9% WoW) and helped to improve our THEMATIC and GROWTH portfolios performance, where we have 35k Redtone-WA shares each in those two portfolios.

Source: Kenanga