The uneventful Budget 2015 announcement is not expected to provide any lift to the market this week. In fact, we expect the benchmark index to dip slightly further before seeing any meaningful rebound to the 1,829-1,837 level. Export-oriented sectors/stocks should continue to be in the limelight in view of the current favourable forex environment as well as the neutral impact from the upcoming GST implementation. We continue to advocate investors to adopt a “Buy-on-Weakness” strategy. Portfolio performance-wise, all our model portfolios performed negatively in alignment with the weak market sentiment last week. However, on YTD basis, all three portfolios continued to outpace the benchmark index by a wholesome 1,289-2,083bps with the GROWTH portfolio still at the pole position.

Time to accumulate on weakness. The sharp sell down in the local market last week could provide some trading opportuties, in our view. Having said that, we expect the 30-stock index to test the immediate psychological 1,800 level (or even breaking below it briefly) before any meaningful rebound emerges and re-test the 1,829-1,837 level. A “Buy-on-Weakness” strategy remains our favourite approach for now. Limelight should be on export-oriented sectors/stocks (i.e. Glove: SUPERMAX (TP: RM3.23); KOSSAN (TP: 4.86); HARTA (TP: RM7.48); and Tech: MPI (TP: RM6.72) and VS (TP: RM3.16)), which allow investors to: (i) capitalise the recent strengthening USD against RM; and (i) neutral impact to the upcoming GST implementation.

A wild roller coaster ride. The local market experienced a roller coaster trading mode last week where the FBMKLCI traded in the 1,849-1,808 range and closed at 1,808.88 (-1.74% WoW) last Friday as a result of several unfavourable external factors. The much awaited proposed merger details of CIMB, RHBCAP and MBSB failed to cheer the overall market sentiment last week albeit the potential synergies (post-merger) outweighing dis-synergies over the long run. CIMB (-4.6% WoW) was the biggest loser among the index-link stocks, followed by PBBANK (-2.8%) and SKPETRO (-10.1%). On the external front, concerns about lacklustre growth in world economies and potential disappointing U.S. corporate earnings for 3QCY14 sent Wall Street and other world stock markets south bound. Benchmark U.S. crude oil also fell sharply last week (to below USD90/barrel or c.20% below its 2014 peak of USD107.26/barrel), continuing its multi-week decline, on concerns that global oil production remains high despite signs that global demand is slowing. Meanwhile, the IMF also cut its global outlook for 2014 (to 3.3% from 3.4% in July) and 2015 (to 3.8% from 4.0% in July) earlier last week as countries fail to recover strongly from recession.

Negative returns in all portfolios. In line with the overall weak trading sentiment, where the FBMKLCI plunged by 1.74% WoW, all our model portfolios recorded negative returns last week with the DIVIDEND YIELD portfolio being the worst performer (-3.65% WoW), no thanks to the continued profit taking in MITRJAYA (-8.5% WoW) and BJTOTO (-4.8% WoW). The GROWTH and THEMATIC portfolios, meanwhile, was lower by 0.63% and 0.57%, respectively, mainly led by the weakening share price performance in REDTONE (-3.8% WoW) as a result of an accounting dispute in its FY14 annual report. On YTD basis, all three model portfolios continued to outpace the benchmark index by 1,289-2,083 bps with the GROWTH portfolio (+22.24%) still taking the lead followed by the THEMATIC (+21.57%) and DIVIDEND YIELD (+14.3%) portfolios vs. +1.09% total returns in the FBMKLCI.

Adding SUPERMAX into the portfolios. We are adding 8k shares (at RM2.30/share) each into our THEMATIC and GROWTH portfolios in view of: (i) it being a beneficiary of the strengthening USD vs. RM, (ii) GST neutral due to export oriental business, (iii) steep 40% discount to the sector average, and (iv) re-rating catalyst upon commercial production of its new plant expected by end Dec. (one line has started production) which dispelled market scepticism of persistent delays in the new plant. We have a target price of RM3.23 for SUPERMAX.

Source: Kenanga