We expect the FBMKLCI to trade in sideways consolidation mode this week at the 1,812-1,839 range due to the lack of catalysts. The direction of the local benchmark index this week will be very much dependent on: (i) the on-going local corporate report cards, and (ii) direction of the foreign funds’ flow. Our portfolios’ returns were mixed last week with the DIVIDEND YIELD portfolio being the sole gainer. On YTD basis, all the model portfolios continued to outperform the 30-stock index by a whopping 1,584-2,140 bps.

Sideway consolidation mode. The FBMKLCI is expected to trade in a sideway consolidation mode this week within a range of 1,812–1,839, in view of the lack of favourable catalyst. The direction of the local benchmark index this week will be very much dependent on: (i) the on-going local corporate report cards, and (ii) the foreign fund flow. Few index-linked companies, i.e. IOICORP, KLK, Maxis and YTL have scheduled to release their respective 3QCY14 report cards this week. Thus far, about 24.0% (or 33 out of the 138 companies) under our stock universe had reported their respective 3QCY14 resuts, of which 12.0% (or 4 companies) came in above while 36.0% failed to deliver. On the fund flow, foreigners continued to be net buyers for the 2nd consecutive week with a total net inflow of RM62.3m (as of last Thursday). Moving forward, the direction of the foreign flow remains vague but could be affected by: (i) persistently weak RM/USD exchange rate, (ii) Europe & Japan stimulus plans, and (iii) better-than-expected U.S. corporate earnings as well as economic data. All these could potentially lower the appetite of foreigners to invest in the local market. Nevertheless, having said that, the local economy remains buoyant, where Malaysia’s 3QCY14 GDP is expected to growth by 5.7% YoY, which could act as a shelter during uncertainties.

Profit taking activities kicked-in, as expected. Followed the strong rebound (4.9%) recorded in the second half of October, investors started to take some gains off the table last week. The profit taking activities led the FBMKLCI lower by 1.67% WoW (or -30.96 points) to 1,824.19 at last Friday’s closing bell. 25 index-linked counters recorded negative return on a weekon-week basis, of which SAKP (-9.7%); TNB (-2.7%); and PBK (-1.6%) topped the laggers list.

Bulls remain strong in the US and European stock markets. On the external front, the Dow and S&P 500 index notched all-time highs last week on better-than-expected economic data, and the unveiling of ECB’s (European Central Bank) stimulus plan in detail. European stocks also cheered last week after ECB President Mario Draghi indicated that the ECB has started buying covered bonds last month and would ‘soon start to purchase asset-backed securities’. Draghi said the new stimulus plan, which are designed to : (i) lower borrowing, (ii) stimulate the economy, and (iii) attempt boosting dangerously low inflation, will last for at least two years.

A mixed bag of returns. Despite the weak trading sentiment last week, the DIVIDEND YIELD portfolio still managed to climb 0.6% WoW and outperformed the 30-stock index which slipped 1.67% WoW. The relatively strong performance was mainly driven by MITRAJAYA which share price gained 4.7% WoW thanks to a new contract. The THEMATIC and GROWTH portfolios, meanwhile, performed in tandem with the benchmark index and recorded -1.4% WoW and -1.7% WoW, respectively. The weak performance was mainly on account of lower TENAGA’s share price, which share price dipped by 2.7% WoW as a result of no electricity hike until June 2015. YTD basis, all three model portfolios continued to outpace the benchmark index by 1,584-2,140 bps with the GROWTH portfolio (+23.54%) remaining at its top position followed by the THEMATIC (+22.83%) and DIVIDEND YIELD (+17.98%) portfolios vs. +2.14% total returns in the FBMKLCI.

Source: Kenanga