The FBMKLCI is expected to trade within a range-bound band of 1,700-1,750, awaiting the outcome of the new Budget 2015 which is set to be re-examined this week. Any material revisions in the review are expected to carry considerable weight on the upcoming sovereign bonds rating review by both Moody’s and S&P rating agencies. Portfolio performance-wise, our 2015 model portfolios’ total returns continued to improve despite the current volatile market and outperformed the benchmark index by 115-180bps on YTD basis.
All eyes on Budget 2015, again. The limelight of this week will certainly focus on a review of Budget 2015 of which Prime Minister Datuk Seri Najib Razak indicated that a statement on the restructuring would be issued this week. Note that the original Budget 2015’s project revenue was based on global oil prices of USD100-USD105/barrel and increased tax revenues. Since late June, prices for both US West Texas Intermediate (WTI) and the Global Brent crude benchmarks have more than halved on a combination of a supply glut and softening demand stemming from the uncertain global economic recovery, thus putting pressure on the government to review the Budget. We believe, there is room for the local authority to reduce its development expenditure (which has been allocated RM48.5b in Budget 2015, the highest since 2010) to c.RM42b, a similar quantum allocated a year ago. Deferred expenditure (c.RM5b-RM6b), if any, is expected to hit rural projects rather than the major infrastructure projects, such as the KVMRT, and LRT extensions, thus suggesting minimal impact to the listed construction companies.
Local sentiments appear stabilised despite higher external volatilities. The FBMKLCI appeared to have established some near-term supports last week despite the continued slide in Ringgit and crude oil prices. Banking stocks were in the limelight last week, where the market responded to the latest development of the mega merger news. At last Friday’s closing bell, the barometer index inched up higher by 11.13 pts or 0.64% WoW to settle at 1,743.57. Key index movers were CIMB (9.9% WoW), TNB (1.6% WoW) and ROTH (4.7% WoW). On Wall Street, the market continues to face some selling pressures last week, from underperforming earnings reports and unexpected Eurozone pressures (when the Swiss National Bank decided to scrap its currency cap, removing the 1.20 floor against the euro) to a crude oil rally that vanished as quickly as it appeared. Benchmark indexes endured a bumpy trading mode last week and led the S&P 500 and the Dow closed below 2,020 and 17,600 level, respectively.
YTD portfolios’ total returns continued to improve. Despite having merely invested half of our allocated funds, all our model portfolios continued to outpace the benchmark index’s total return on YTD basis with DIVIDEND YIELD portfolio taking the lead (1.28% vs. -0.52% in the FBMKLCI), followed by the GROWTH (1.22%) and THEMATIC (0.63%). Weekly, both GROWTH and DIVIDEND YIELD portfolios outperformed the FBMKLCI by 173-133 bps while the THEMATIC portfolio underperformed by 20 bps, partially due to the minor unrealised losses incurred in our newly added 2.5k CIMB shares. Despite CIMB closing below our entry price (RM5.85 vs. RM5.92) last Friday, we believe its price downside is minimal given that the share is merely trading at 1.3x FY15 P/B, a far cry from its 5-year average P/B of 2.0x and the sector average of 1.6x. All in all, we are taking a trading view on CIMB share, and plan to realise our profit should the share price improves to RM6.30-RM6.50 range.
Source: Kenanga
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