The FBMKLCI is expected to trade in a choppy range-bound mode between the range of 1,847-1,883 before the conclusion of the monetary policy meeting this week in both Malaysia (18th of September) and U.S. (16th – 17th of September). While the market has lowered its expectation of OPR rate hike by BNM, we reiterate our view of another 25bps hike. The US Fed, meanwhile, is expected to alter its language for its forward monetary policy guidance in the upcoming FOMC meeting and provide more clues on its interest rate hike timeframe. Performance-wise, our three model portfolios outperformed the FBMKLCI by 53-282bps last week and continued to outpace the benchmark index by 1,352-2,085bps on YTD basis with GROWTH Portfolio retaining its top performer status.

Choppy range-bound mode view remains unchanged. We reiterate our choppy range-bound mode view (between 1,847-1,883 level) on the local benchmark index before the conclusion of the monetary policy committee meeting in both Bank Negara Malaysia (BNM) and the US Fed this month. We believe the local market trading sentiment could be negatively affected should BNM decide to implement another hike on its overnight policy rate. After the 25bps hike in July, the market is expecting another 25 bps hike, either on September 18 or during the last scheduled meeting for the monetary policy committee for the year on Novermber 6. Bloomberg survey (submited by 9 economists) showed that the consensus is now expecting the OPR to maintain at 3.25% vs. another 25 bps hike as at last week. On the external front, U.S. Fed is expected to alter its language for its forward guidance (with regards to its monetary policy plan) under the upcoming FOMC meeting that is scheduled to be held on 16th-17th of September. There are some growing concerns that a possible interest rate hike might occur sooner than expected. However, we reiterate our view and believe any rate hike will only happen in mid-2015. Any unfavourable signal on the interest rate hike timeframe could usher in market volatility and spark a withdrawal of funds from emerging markets. Meanwhile, the geopolitical risk on the ongoing Russia/Ukraine standoff could continue to aggravate market volatility if it escalates.

A choppy week as expected. Local stocks ended mostly flat last week amid the lack of re-rating catalyst, with the FBMKLCI closing at 1,855.64 (-0.69% WoW or -12.82 points) last Friday. SIME (-4.8%) was the biggest loser among the index-link stocks, followed by PBK (-1.6%) and MAYBANK (-1.4%). The uninspiring FBMKLCI last week was in tandem with key regional markets, which were mainly clouded by the U.S. interest rate hike speculation as well as heightened cautious mood after the US committed to a long-term fight against terrorism. On Wall Street, the S&P 500 index continued to hover near the physiological 2,000-mark level, despite speculations over the prospects of rising U.S. interest rates, which continued affect trading sentiment.

Gain some lose some. Both THEMATIC and GROWTH portfolios outperformed the 30-stock index last week and recorded gains of 2.1% WoW and 1.5% WoW, respectively, in contrast to the FBMKLCI (-0.69% WoW). Both portfolios were mainly driven by the better performance of REDTONE (which climbed +6.5% WoW) and TNB (+1.8% WoW). Despite REDTONE now trading above our target price of RM0.77, we continue to urge investors to continue holding the stock as the group is in advanced stage of concluding more data projects (i.e. T3 extension and tele-radiology projects). We see rooms to raise our target price should the group manage to seal these projects from the government. The DIVIDEND YIELD portfolio, however, suffered 0.2% loss in the total invested amount, no thanks to the lower share price performances in both MAYBANK (-1.4% WoW) and BJTOTO (-0.8% WoW). On YTD basis, all three model portfolios continued to outpace the benchmark index by 1,352-2,085 bps with the GROWTH portfolio (+24.08%) taking the lead followed by the THEMATIC (+22.38%) and DIVIDEND YIELD (+16.75%) portfolios vs. +3.23% total returns in the FBMKLCI.

Be prepared for rainy days. We have disposed all our exposure in FIBON (30k share each in all three portfolios) last Friday at RM0.505/ share. While the group’s long-term outlook remains intact, its near-term catalyst (i.e. factoring finance business) is likely to come in slower than expected. Thus, we decided to dispose the share and free-up the cash for other trading opportunities. With the disposal, we have incurred RM1.05k losses (or 6.5% down in share price) each in all three model portfolios.

Source: Kenanga