After weeks of downtrend with the heavyweights being sold down over the past two weeks, the local market could have bottomed out, at least in the near-term, and is poised for a rebound this week to test the 1,800 psychological level before consolidating at 1,830-level. This is because last week’s low of 1,767 was at an 8% discount to the consensus index target which implies a potential bottom level. Nonetheless, the external factors such as: (i) the Ebola outbreak, (ii) the upcoming US earnings report card, and (iii) the weakening oil prices, will continue to chart the market direction. Last week, all our three portfolios posted losses, which were in line with the broader market and underperformed the FBMKLCI by 21-181 bps. But these portfolios still outperformed the 30-stock index by a whopping 1,220-2,050 bps YTD.

Stage for a rebound? The local market has been on a downtrend in the past one month with heavyweights bashed down in the last two weeks. Technically, both domestic and other regional bourses, are in oversold territory setting the stage for a techincal rebound. In addition, the FBMKLCI could have bottomed out as last week’s low of 1,767.77 was at an 8% discount to consensus index target. As such, the FBMKLCI is likely to rebound this week to test the 1,800 psychological level before consolidating at 1,830 level which is at a 6% discount to the consensus index target. Having said that, the market direction is still very much depends on external factor especially the US market. There are at least three determining factors to chart the market direction in the near term, namely: (i) the Ebola outbreak, (ii) the upcoming US earnings report card, and, (iii) the weakening oil prices.

The market hit a 52-week low. Not spared from the sell-down across the globe, the local market also faced heavy selldown which saw the FBMKLCI hitting its one-year low at 1,767.77 last Thursday. With the uncertainty of market direction, investors sold down all-time favourite oil & gas stocks, including SKPETRO (-5.67% WoW), DIALOG (-0.62%), COASTAL (-15.03%) and ALAM (-0.62%) which saw some of these stocks losing 20%-30% of their values in the past two week. Foreign investors remained as net seller for the whole of last week with a total net outflow of RM198m as at last Thursday. At last Friday’s closing bell, the benchmark index rebounded strongly by 20.54pts or 1.16% from Thursday’s sharp dip to settle at 1,788.31 which was still down 20.57pts or 1.14% WoW. The weekly market movers were CIMB (-3.90%), IOICORP (-3.95%) and SKPETRO. On Wall Street, US investors switched their assets to safe-haven bonds from stocks on fears on a slowdown in global economy after the discouraging US as well as Chinese inflation data. The anxiety sent both DJIA and S&P500 to their six-month lows. In addition, oil price continued to fall to a four-year low and this is not a good recipe for the equity market as well.

Our portfolios were badly hit as well, as investors continued to sell down small caps and third liners besides the blue chips which faced tremendous selling pressure. In fact, all our three portfolios underperformed the benchmark index by 21-181bps over the week. The DIVIDEND YIELD Portfolio continued to be the worst performer which saw its value contracting by 2.95% WoW, reducing YTD total returns to 12.14% while FBMKLCI lost 1.14% over the week, turning its total return to negative territory of -0.06%. THEMATIC Portfolio replaced GROWTH Portfolio as top performer, with YTD total returns of 20.44% as opposed to the latter’s 20.37%, as its weekly decline of 1.35% was lower than GROWTH’s 1.95%. The weakened set of portfolio performance was mainly driven by small caps MAGNI (-6.75%), PESTECH (-4.76%) and MITRA (-3.48%) as well as the bigger cap BJTOTO (-3.64%). Nevertheless, under such times of uncertainty, we are still confident with our portfolios; the well-balanced exposure between big caps and small value stocks could weather any market conditions to optimise returns.

Source: Kenanga