The volatility studies show that crude oil prices could be in the mist of bottoming out while the Ringgit could potentially reverse its downtrend against the greenback following the recent sharp depreciation. This could set the stage for a rebound in the local equity market but the sustainability would depend on the stabilisation of these two factors. This week, the FBMKLCI is likely to trade within the trading band of 1,700-1,750 with focus on defensive names and export-oriented sectors. Portfolio performance-wise, we had a good start where all our newly-built portfolios outperformed the benchmark index by 112-201bps for their first weekly review.

Stage set for a rebound? The latest US economic data looks fairly encouraging, which helped the US key indices recouping their losses. This also partly eased depressing sentiment arising from plunging crude oil prices. On a positive note, we may see a rebound in the local market as the index approaches the psychological 1,700 support level given the potential bottoming of crude oil price based on volatility studies and a likely strengthening of MYR against USD. We, however, remain cautious on the sustainablity of the rebound which is dependent on the stabilisation of crude oil prices and MYR. This week, the key index is likely to be ranged-bound between 1,700 and 1,750 while buying interest is likely to focus on defensive utility and telco stocks as well as export-oriented sectors.

A better ending last week. The local market started the week on a negative note, which was in line with the regional markets, given the pessimism of the world market following the sharp decline in crude oil prices where the Brent oil prices hit new 5 ½ years’low at close to USD50/bbl in the mid-week. The local market sentiment was further impacted by the fast weakening MYR too. However, the local market rebounded towards the end of last week following the strong US market performance. At last Friday’s closing bell, the barometer index fell 20.33pts or 1.16% to settle at 1,732.44. Banking stocks were the main casualties with MAYBANK (-0.59% WoW) topping the losers list followed by PBBANK (-3.62%) and CIMB (-4.14%). Meanwhile, the usual defensive names like TENAGA (+2.60%), MAXIS (+1.92%) and DIGI (+0.48%) led the gainers list. On Wall Street, the Dow rebounded strongly last Wednesday and Thursday to reverse losses after 5 straight-days of contraction, thanks largely to optimism on the recovery of US economy. The market sentiment was spurred further after Fed reaffirmed its accommodative policies.

A good start of our portfolio performance. Although the broad market kick-started the new year on poor footing, two out of three of our newly constructed portfolios managed to end their first weekly review with positive note while DIVIDEND YIELD Portfolio registered a -0.04% weekly returns which was still better than the benchmark index’s -1.16%. THEMATIC Portfolio was the weekly winner with 0.85% WoW gain while GROWTH Portfolio raked in 0.17% weekly gain. The better performance of our portfolios as opposed to the 30-stock index was mainly due to the higher portfolio weighting in TENAGA, which was last week’s top gainer, and SKPETRO (+2.97%), which benefited from bargain-hunting activities on recent sharp decline in share prices. Given that we are holding c.50% cash, we have a better buffer to snap up value stocks should the market continue to dive south.

Source: Kenanga