Faced with a lack of fresh local catalyst and growing geopolitical tension in the Middle East and Ukraine, the market is expected to consolidate further this week. In addition, the technical indicators are also suggesting that the FBMKLCI is likely to be sideway range-bound between 1,863 and 1,889 with downward bias. However, rotational plays on the small cap and third liner stocks are expected to continue. For now, we adhere to our “Buy-on-Weakness” strategy with an ideal buying level of below 1,835. Portfolio-performance-wise, we had a mixed week with gainers led by FIBON, but the weekly gains were capped by losses in REDTONE-WA. Nonetheless, all the three model portfolios still managed to outperform the FBMKLCI by 44-205bps WoW or 1,059-1967bps on YTD basis with GROWTH Portfolio retaining its top performer status.

A tough week ahead. We are now entering the month of August which in past years had proven to be a tough month for equity market, thus making 3Q a weak, if not the weakest, quarter during the year. Given the growing geopolitical tension, especially in the Gaza Strip and lack of near-term positive catalyst, the local market is expected to consolidate further this week as the technical indicators suggest that the benchmark index is likely to be sideway range-bound with downward bias. The immediate near-term trend is range-bound between 1,863 and 1,889. However, small cap and third liner stocks will remain in focus as seen in several rotational plays in the past few weeks. Key corporate event this week is the 1Q15 earnings release by HARTA (+0.15%); one of our TOP PICKs for 3Q14 Strategy this Tuesday where our rubber glove analyst expects stronger QoQ results on the back of better operational efficiency and average selling price.

Market was in the red last week. In contrast to rotational plays in the smaller caps, big caps heavyweights faced profit-taking, especially those with robust YTD gains. Not helping was the weak market sentiment on Wall Street, which prompted local investors to lock in their profits in the shortened-working week. Petronas’companies, namely PCHEM (-3.08%), PETGAS (-1.95%) and PETDAG (-0.42%), faced heavy selling pressure with PETDAG sliding to its 2-year low on concerns of its jet fuel segment following the MH17 tragedy. At last Friday’s market close, the FBMKLCI fell 14.00pts or 0.75% WoW to settle at 1,863.34 with PCHEM the biggest index-stock loser followed by IOICORP (-2.37%) and PBBANK (-0.70%). On Wall Street, the key indexes had their worst single-day drop last week not seen for months since early this year, as fears of interest rate hike coupled with weak earnings report cards kept investors at bay.

Mixed performance for our model portfolios. As small caps took the centre-stage last week while investors were avoiding the bigger caps, our exposure in small cap, like FIBON (+13.95%) paid off well which helped the model portfolios to outperform the barometer index. However, gains were capped by the poorer performance of REDTONE-WA (-5.55%) which resulted in GROWTH Portfolio being the only portfolio with negative weekly returns of 0.31% vs. -0.75% of FBMKLCI. DIVIDEND YIELD Portfolio was the weekly gainer which saw its YTD total returns gaining another 1.30% to 13.80% while THEMATIC Portfolio added 1.00% in weekly gain raising YTD total returns to 22.26%. Nonetheless, GROWTH Portfolio remained the top performer with the YTD total returns of 22.88% as opposed to FBMKLCI’s returns of only 3.21%.

FIBON was the top performer. After months of lacklustre performance, FIBON rebounded strongly last week after releasing its 4Q14 results, which saw its profitability normalised after two bad quarters on its Indonesia operations. The 30,000 FIBON shares position each in all model portfolios helped to boost the respective portfolio value by 1.80% last week. Although the current share price of RM0.49/share is still below our initial cost of RM0.54/share, we remain confident on this small cap given its normalisation of earnings while upcoming contract flow should bode well for its share price. On the other hand, REDTONE (-3.75%) reported 4Q14, which fell short of our estimates, which sent its share price lower. This resulted in the fund values of THEMATIC and GROWTH Portfolios contracted by 1.05% as the invested values of REDTONE-WA of 35,000 share each in these two portfolios declined RM1,050 over the week.

Source: Kenanga