Strong buying interests are expected to emerge between the 1,830-1,835 range despite heightening geopolitical risk in Ukraine and the Middle-East. The “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. Investors should pay attention to blue-chips that were sold down recently as well as the glove makers which could potentially benefit from the recent Ebola outbreak. Last week, we realised gains in our 15k Redtone-WA each in both the Thematic and Growth portfolio and converted the balance 20k warrants to its underlying shares. Performance-wise, our three model portfolios outperformed the FBMKLCI by 212-181bps WoW. On YTD basis, all model portfolios continue to outpace the benchmark index by 1,269-1,969bps with GROWTH Portfolio retaining its top performer status.

Time to shop. While the local stock market volatility is expected to remain high over the next few days, the FBMKLCI is fast approaching our ideal buying level (at 1,835 and below) where we believe strong buying interest could potentially emerge at 1,830-1,835 range. Investors should start to plan their autumn shopping list and adopt a “Buy-on-Weakness” strategy. Stocks to focus include blue-chips sold down by investors recently (i.e. TNB (TP: RM13.77)), as well as the glove makers (i.e. Kossan (TP: RMRM5.13) & Hartalega (TP: RM7.48)) which could potentially benefit from the recent Ebola outbreak. In addition, as we are entering the earnings reporting peak season in August, corporate earnings report cards will continue hog investors’ limelight and should provide a clearer clue on the market direction for the next few months. Notably, corporate earnings report cards scheduled for release this week include AFG (Monday), Nestle (Tuesday) and Amway (Wednesday). The FBMSmall Cap index has retreated to 18,851 last Friday followed a 52-week high (at 19,172) recorded a day ago. While the mid-and-small-cap stocks continue to remain an attraction for investors, we do not discount that selling pressure may likely kick-in over the coming weeks in view of the heightened geopolitical risk, which could lead to lower risk appetite and investors shying away from the higher volatility stocks.

A steep hike in volatility. The local equity market ended the week lower at 1,839.87 (-1.26% WoW), the lowest close since March 25, following news report that U.S. President Barack Obama has authorised air strikes in Iraq last Friday. The heightened geopolitical risk has led the FBMKLCI to plunge 1.47% in a single day, the biggest percentage drop since August 20. PUBLIC BANK (-3.9% WoW) was the biggest loser among the index-link stocks, followed by PTG (-8.7%) and TNB (-3.4%). On Wall Street, stocks ended lower last week, continuing a recent streak of weakness as Russia retaliated against U.S. and European sanctions by banning some western food imports prompting investors to raise their concerns over global economic growth. Meanwhile, the World Health Organisation also said in a press conference on Friday that the Ebola epidemic required an extraordinary response to stop its spread and suggested all affected countries to declare national emergency. The Ebola outbreak coupled with escalating geopolitical tensions in both Russia and Iraq could continue to dampen the already weak trading sentiment.

Fibon (+13.3% WoW) - the star performer last week boosted all three model portfolios to record positive return despite the weaker overall market. Dividend yield portfolio was the top gainer last week with 0.86% weekly gain, extending YTD total returns to 14.8%, followed by the GROWTH (+0.58% WoW to 21.9% YTD) and Thematic (+0.55% to 21.4%). Their performance has clearly outpaced the FBMKLCI gain of only 2.12%.

Partially realised Redtone-WA gains and converted the rest to Redtone share. Our 35k Redtone-WA investment each in both the Thematic and Growth portfolios had performed well and recorded RM2,625 (or 17.9% return) gains as of last Friday. In view of the weaker trading sentiment ahead, we decided to sell 15k Redtone-WA shares and realised RM1,125 gains each for both the portfolios. The balance shares (or 20k Redtone-WA each) will be converted to its underlying share (Redtone International Bhd), which generally has lesser price volatility in contrast to its warrant, by paying RM0.25/share strike price, The conversion has resulted in an investment cost in Redtone International Bhd of RM0.745/share vs. RM0.77/share last Friday closing price.

Source: Kenanga