The local equity market is expected to remain choppy and volatile in the near term as a result of the unfavourable macro factors (i.e. lower crude oil prices and weak Ringgit against USD). Thus, ‘Be Selective’ and more trading-oriented are likely to be the name of the game in 1Q15/2015 investment strategy. The benchmarked index had experienced a roller coaster in December, where sentiment in 1H had been dampened by the continued weak crude oil prices and weak Ringgit but partially mitigated by the window-dressing activities in the 2H. Similarly, our OR tracker portfolio total return also performed negatively in December, align with the broad market trend. Having said that, the average return between realised OR portfolio and unrealised OR tracker since inception is still managed to outpace the benchmark index’s total returns (27.7% vs.15.7%) for the same period. Technically speaking, FBMKLCI seems downside biased with an immediate support of 1,727 and followed by the 1,707 next. Meanwhile, overhead resistance remains unchanged at 1,759 followed by the 1,791 level.

A season greeting month. We merely issued two On Our Radar (OR) reports during the eventful month in December, which include a new stock idea (MYEG, TP: RM4.73) as well as a company updates report on VS Industry (VS). We believe MYEG is likely to benefit from the upcoming Road Safety project that initiated by the authority as well as further expansion in its foreign workers permits renewal services. On top of that, the group recent announced 1-to-1 bonus issue (that scheduled to be completed in 1QCY15) is expected to further enhance its share liquidity moving forward. On the VSI front, we continue to believe its valuation is expected to be re-rating given its crystallising sizeable earnings as well as the commitment of dividend payout policy. Our target price of VSI has been raised to RM3.56 from RM3.16 previously.

A roller coaster month. The continued weaken in RM (against the USD) coupled with soften oil prices dampened the local trading sentiment in the late 4Q14. Followed by a strong dip of 146.95 points in the 1H of December, the FBMKLCI managed to recoup some losing grounds (or +87.3 points since 16th of December) in the last two trading weeks, albeit accompanied by lacklustre volume, and closed the year at 1,764.44 (or -5.67% YoY), thanks to year-end window dressing. On a month-on-month performance basis, the FBMKLCI continued to dampen by the weak macro factors and recorded a second consecutive month of negative total return in December. Similarly, our OR tracker portfolio (which still have a Trading BUY call) also performed in tandem and recorded -10.7% total return (in December), dampening its full-year total return to -3.6% in 2014. The negative total return was mainly led by the weak performance in all our mid-to-small cap stock selections, which tend to underperform the benchmark index during the correction phase and vice-versa.

VS leads the OR tracker list. VS has overtaken PIE top performer status under our OR tracker with an unrealised gain of 73.0%, albeit it posted a -1.2% return in December. On the other hand, PIE became the second largest gainer with unrealised gain of 66.6%, followed by MITRA (33.3%) and YEELEE (30.8%). On the flipside, the top three worst performers since inception were Public Packages (-35.8%), London Biscuits (-33.3%) and DELEUM (-29.5%), partially due to the weak trading sentiment in the overall broad market. We will revisit our numbers on those companies in the coming weeks/months.

Continued to outpace the FBMKLCI since inception despite market volatility escalating. With an additional new Trading BUY added in December, we have a total 24 stocks in our OR tracker list. Together with 44 stocks in the realised portfolio, the average total returns for the tracker stocks and realised portfolio since inception (13-Aug-2012) is 27.7%, which still outpaced the FBMKLCI’s total return of 15.7% for the same period.

Source: Kenanga