The uninspiring 3QCY14 corporate earnings so far coupled with unfavourable external factors may continue to dampen the FBMKLCI outlook over the near term. We believe the benchmark index may continue to trade in a consolidation mode this week with downside bias at a range of 1,796-1,815 level. In view of the lacklustre 3QCY14 results thus far, we believe there is an increasing chance for research houses to tone down forward corporate earnings as well as the index target, hence suggesting a challenging outlook ahead. Nevertheless, all our model portfolios recorded positive returns last week and continued to beat the FBMKLCI’s total return on YTD basis by 1,810-2,089bps with GROWTH Portfolio remaining the top performer.

Increasing downside risk. The FBMKLCI is expected to continue to trade in a consolidation mode with downside bias this week at the 1,796-1,815 range due to lack of corporate earnings catalyst and unfavourable external factors. The 3QCY14 corporate report cards are not encouraging thus far. There are 56% (or 77 out of the 138 companies) under our stock universe which had reported their respective 3QCY14 results, of which 9% have beaten expectations while 34% (or 26 companies) failed to deliver. Notable key-index linked companies that reported disappointing 3QCY14 results include CIMB, PETGAS, PETDAG, and KLK. Moving into the last week of the reporting season, our recent channel check with several corporates and industry players suggested that positive surprises are unlikely to happen. Consensus is still holding to a 12-month target of 1,936 for the FBMKLCI. Nevertheless, in view of the uninspiring 3QCY14 results thus far, there is an increasing chance for research houses to revise their respective index target downwards post the results review. On the other hand, we also believe there is an increasing likelihood for foreign capital outflow to rise in the coming weeks in view of: (i) persistence weak RM/USD, (ii) absence of near-term local interest rates hike, (iii) relatively rich valuations as compared to the regional peers, (iv) continued recovery in US economy, and (v) on-going European QE programme. All these factors could potentially trigger foreign investors to repositioning their investments in the local market.

Local market sentiment remains weak ……The FBMKLCI continued its downward trend for the 2nd consecutive week and closed 4.66 points lower (or -0.26% WoW) to 1,809.13 last Friday. The weak trading sentiment was mainly attributed to the lacklustre 3QFY14 report cards (thus far) as well as persistently low oil prices (where oil prices have plunged c.30% since mid-June on concerns about ample global supplies and tepid demand growth) which resulted in a challenging outlook for the local Oil & Gas sector. Last week, there were 15 index-link counters which recorded negative returns on a week-on-week basis, of which CIMB (-7.6%); PETD (-10.2%); and IOI (-2.5%) topped the laggers list.

…despite bulls remaining strong in the US. On the external front, the Dow and S&P 500 Index continued notching all-time highs last week on the heels of a series of encouraging economic data and solid corporates earnings. With 96% of the S&P 500 released reports thus far (as of last Thursday), 71% of companies have beaten consensus estimates on the bottom-line while 21% have missed. On the revenue basis, 59% of companies have beaten the Wall Street estimates, while 41% missed.

Positive return on all portfolios with DIVIDEND YIELD portfolio leading the gains which recorded 3.2% WoW (vs. -0.26% WoW loss in the FBMKLCI) followed by THEMATIC (1.6% WoW) and GROWTH (1.0% WoW) portfolios. Notable gains last week included MITRAJAYA (5.9%), TNB (3.1%) and BJTOTO (2.9%) while the good performance was partially offset by the lower share price in REDTONE (-0.7%) and IJMCORP (-0.1%). On YTD basis, all three model portfolios continued to outpace the benchmark index by 1,810-2,089 bps with the GROWTH portfolio (+22.24%) remaining at its top position followed by the THEMATIC (+21.20%) and DIVIDEND YIELD (+19.45%) portfolios vs. +1.35% total returns in the FBMKLCI.

Source: Kenanga