Global equity markets were mixed in July-14, with Asian markets outperforming the West. Geopolitical tensions were in focus amid the escalation of conflict in Iraq with sentiment further hit by several air tragedies. The US market posted a marginal loss in July as investors were busy taking profits after it repeatedly charted record highs over the past few months. On 31st July 2014, the DJIA index closed the month slightly lower at 16,563.3 (-1.6% MoM), followed by a slight dip in the S&P500 index to1,930.6 (-1.5% MoM). Across Europe, the FTSE 100 Index and European Stoxx 50 followed suit to dip 0.2% and 3.5% MoM, respectively. Asian market, however, performed generally well, with the Nikkei 225 rising 3.0% MoM, Singapore’s STI surging 3.6%, Thailand’s SET climbing 1.1% and Indonesia’s JCI rising 4.3% for the month.

FBM KLCI’s July Performance. On the local front, the benchmark FBMKLCI was down 11.35 points (-0.6% MoM) to end the month at 1,871.36. As anticipated earlier, the local benchmark continued to trade within a tight sideways range of 1,868 to 1,892 during the fasting month. Market sentiment swung between positive and negative, amid a combination of factors in the markets such as: (i) the 25bps interest rate hikes by BNM, (ii) potential CIMB-RHB-MBSB mega-banks merger, (iii) MH17 tragedy, and (iv) on-going geopolitical uncertainties in Iraq & Ukraine. As index-linked counters consolidated, rotational plays in the small caps and penny stocks were apparent as retail investors jumped aboard the bandwagon after the FIFA World Cup competition ended. This resulted in the FBMSC index rallying 1134.50 points (+6.3% MoM) at 19,066.40.

On Our Technical Watch Monthly Review. During the month, we were actually more aggressive in our small-mid cap recommendations compared to the past two months. This was mainly in view with our view last month that the FBM Small Cap index is showing signs of bullishness following a technical resistance breakout. Of the 31 technical stock highlights that we made during the month, 5 of them were BUY recommendations (CBIP, MUHIBAH, SMRT, MFLOUR, KAMDAR), 5 of them were TAKE PROFIT recommendations (ECS, SKPRES, VITROX, KAMDAR and MUDA), while the remaining 21 stocks were NOT RATED. All our technical buy recommendations were based on breakout pattern from their strong resistance levels.

Another Solid Monthly Gain! Despite the poor sentiment as mentioned above, our realised portfolio managed to register 18.6% return, which outperformed the benchmark FBMKLCI by 19.2 percentage points for the month. Gainers on the tracker were recorded by MUDA (+29.5%), SKPRES (+25.0%), ECS (+23.3%) and VITROX (+22.7%), which were more than enough to compensate for the only stopped-out loss on KAMDAR (-7.5%). KAMDAR did not perform as per our expectations due to the absence of strong positive news-flow.

August Technical Strategy. Technically speaking, the general trend of the FBMKLCI has turned down after it slid below the sideways range of 1,875 – 1,889. Coupled with the weak readings from momentum indicators and our seasonality study, immediate technical outlook for our local benchmark is downside-bias While we believe that some buying support could emerge at 1,850, our preferred “Buy On Weakness” level is at 1,828 (the 50-day SMA level on the weekly chart). Similarly, the FBM Small Cap index is showing signs that a bearish reversal trend could happen very soon to neutralise the current overbought situation. Overall, we expect the local equity market to undergo a short-term correction period in the month of August Thus, our technical picks could be more selective during the month and we might use this window to nimble on quality oversold stocks for longer-term gains.

Source: Kenanga