Last week, the local market rebounded from an oversold position as investors bargain-hunted for bashed down quality heavyweights while smaller caps remained the focus of rotational plays. However, technical readings indicate that the FBMKLCI is likely to move range-bound this week between 1,843 and 1,860 with downward bias. In fact, the technical picture for the FBMSC index is stronger than the 30-stock FBMKLCI which implies that the rotational plays in the small cap and third liner stocks are expected to be sustained. We continue to prefer the “Buy-on-Weakness” strategy with an ideal buying level of below 1,835. Portfolio-performance-wise, the overall performance was fairly decent although the THEMATIC Portfolio underperformed the benchmark index by 110bps WoW. Both DIVIDEND YIELD and GROWTH Portfolios beat the key index by 251bps and 35bps, respectively. YTD, our portfolios outperformed the 30-stock index by a far cry of 1,507-1998bps with GROWTH Portfolio still leading the pack.

 

To consolidate with downward biased. As the FBMKLCI had already recovered from its previous week’s oversold position, the local market is expected to consolidate this week but still with a downward bias. Statistics shows that the 3Q is always a weak quarter if not the weakest; together with geopolitical tensions in the Gaza Strip and Ukraine which are unlikely to ease in the near-term, the local equity market is likely to be trapped in consolidation mode in coming weeks. The immediate near-term trend is range-bound between 1,843 and 1,860. However, rotational plays on small cap and third liners are also likely to continue as market participants are hungry for trading ideas especially when blue chips are deemed expensive. On the other hand, more results releases in the next two weeks would set the market tone. So far, the overall report card is generally in line with expectations despite a few underperformers.

Market rebounded last week. Bargain hunting activities helped the FBMKLCI to recover from an oversold position in the previous week. Investors snapped up bashed down quality blue chips like TENAGA (+2.84% WoW) and PETGAS (+7.40%) while retailers focused their buying in small caps and third liners. The positive 2Q14 GDP YoY growth of 6.4% which was announced last Friday’s afternoon also helped to push the benchmark index higher during the last trading hour. At the end of last Friday’s closing bell, the barometer index advanced 1.33% or 24.44pts to settle at 1,864.31. Last week’s main market movers were PETGAS, TENAGA and CIMB (+2.20%). On Wall Street, US stocks moved slightly higher as the conflict in Ukraine was seen to be subsiding. However, market sentiment remains cautious as investors were reluctant to place big bets until the current geopolitical uncertainties go away. Not helping were the lacklustre earnings reports cards which also kept investors at bay.

Another commendable week for our portfolios. Although one of our portfolios underperformed the benchmark index, overall performance was fairly decent with good returns thanks largely to small caps MITRA (+18.82%) and PESTECH (+6.84%). But gains were mitigated by losses in FIBON (-7.21%) as it faced profit-taking activities after two weeks of good run. DIVIDEND YIELD Portfolio retained its top weekly performance with fund value growing by another 3.84% for a YTD total returns of 18.55%. GROWTH Portfolio came second with weekly gain of 1.68%, against FBMKLCI’s 1.33%, extending its YTD total returns to 23.46%. Despite underperforming the FBMKLCI with only 0.23% weekly gains, the THEMATIC Portfolio still registered commendable YTD total returns of 21.56% which is far better than the benchmark index’s 3.48%.

Small caps led the show. As we have a well-balanced exposure to small caps in our portfolios, the current market condition worked in our favour. MITRA was the top performer last week as the 25,000 shares invested in DIVIDEND YIELD Portfolio contributed a 4.00% weekly gain to the portfolio. We believe investors are currently more appreciative to this under-researched construction stock, ahead its 2Q14 results release this month-end which is anticipated to surprise on the upside. Likewise, investors came back into PESTECH again after a quiet period since the share went ex-bonus last month. PESTECH contributed 1.30% weekly gains to GROWTH Portfolio with 5,000 share in its stable, ahead of its 2Q14 results release at the end of this week, which is expected to meet our FY14E net profit estimates of RM28.5m.

Source: Kenanga