The local market is expected to pull back from its recent uptrend on heightened geopolitical tension in the Middle East, which could lead to higher market volatility. Thus, we do not discount the FBMKKLCI retesting the psychological 1,800 level in the near-term, failing which may cause a retracement to 1,783. Portfolio-performance-wise, all our three portfolios underperformed the benchmark by 132-222bps WoW. Nevertheless, they still beat the 30-stock index by 343-1253bps on YTD total returns basis.

Geopolitical tension is back, again. The escalating geopolitical tension in the Middle East is expected to cloud the market direction this week and could result in the market experiencing higher volatility as events unfold. Global oil prices have surged more than 4% last Thursday on growing concerns after Saudi Arabia bombed key military installations in Yemen. Despite higher global oil prices, the FBMKLCI has started to lose momentum since last Thursday. Thus, in view of the higher geopolitical tension coupled with the persistent weak Ringgit (against the Dollar), we believe the FBMKLCI may be ripe for a pullback from its recent uptrend. Technically speaking, the immediate support for the FBMKLCI are at 1,783 followed by 1,776 next, while its key resistances are at 1,827 followed by 1,850.

Losing steam. Last week, the local market started positively before losing steam towards the week-end due to rising geopolitical temperature in the Middle East. Having said that, the FBMKLCI still managed to close 9.72 points or 0.54% higher to 1,813.37 WoW. The key index leaders last week included PCHEM (7.0% WoW), GENTING (3.0%) and IHH (3.5%) while TENAGA (-2.7%), Digi (-2.2%) and MAXIS (-0.7%) were the top three laggards. On Wall Street, US stocks were generally lower last week as investors were still adjusting to the idea that interest rates are going to go up at some point this year. The recently concluded Fed meeting signalled that it could raise its benchmark interest rate within months on falling unemployment, but will no rush to act until it is confident that inflation will edge up towards its 2% annual target over the medium-term. On top of that, jittery investors were also reacting to the rising tension in the Middle East and weak economic data, sending stocks gyrating most of the time last week.

Our portfolios underperformed the market. Portfolio-performance-wise, all our three portfolios underperformed the FBMKLCI as almost all our invested stocks declined over the week except HARTALEGA (+1.3%) and PESTECH (+2.3%). DIVIDEND YIELD Portfolio was the weekly biggest loser with a 1.68% drop in investment value, pulling YTD total returns to 7.50%, against the barometer index’s +0.54% WoW and 4.07% YTD total returns. GROWTH Portfolio saw its YTD total returns reduced to 16.60% after a 1.27% weekly loss while THEMATIC Portfolio’s YTD total returns also retraced to 10.29% after a 0.78% weekly decline.

Trading in Redtone suspended on last Friday, pending a major corporate exercise. No detail was announced by the company at that point of writing. We will issue a separate research report on Redtone once the details are unveiled. 

Source: Kenanga