The local equity market is expected to remain in range-bound trading mode but with volatile mood swing as a result of the prevailing unfavourable macro factors (i.e. lower crude oil prices and weak Ringgit against USD). Thus, Buy-On-Weakness and tradingoriented plays are the preferred strategies in the 2Q15. The benchmark index experienced a “V” shape chart in March, where in early 1H, sentiment was initially dampened by weak crude oil prices and falling Ringgit but mitigated by the better external factors (i.e. positive statement made by U.S. Fed and potential stimulus packages introduced by the Chinese authority) in the 2H. Our OR tracker portfolio total return underperformed the 30-stock index marginally (-0.7% vs. +0.5%) in March but still outpaced the barometer index’s total returns in both YTD (14.9% vs. 4.6%) and since inception (32.0% vs. 21.0%).

A busy month. We have issued in total eight On Our Radar (OR) reports in March, which include two new stock ideas (CAB, TP: RM1.29, and VITROX, TP: RM3.84), two follow-up company update reports on ECS and MNRB as well as four take-profit /cutloss calls (VSI, YEE LEE, PUBLIC PACKAGES and LONDON BISCUITS). Lady luck was with us in those two new stocks highlighted in March. CAB received overwhelming market interest and recorded 13% gain since recommendation while VITROX’s share price was lowered marginally by 0.3%. ECS is expected to continue benefiting through leveraging on its smart phone segment, thus leading us to reiterate our TRADING BUY call with a higher target price of RM1.76. Similarly, we continue to favour MNRB due to its cheap valuations (in contrast to its peers) despite its target price lowered to RM4.35. On the other hand, we realised 194% and 76% gains in VSI and YEE LEE, respectively, after closing our trading positions in March and similarly, suffered 12% to 17% losses in PUBLIC PACKAGES and LONDON BISCUITS, respectively. All in all, our OR tracker list underperformed the benchmark index (-0.7% MoM vs. +0.5% MoM in the FBMKLCI) in March with KELLINGTON (-12%), PINTARAS (-8%), PELIKAN (-8%) being the top three losers, partially cushioned by the better performance of ECS (15%), CAB (13%) and PW CONSOLIDATED (7%). .

A “V” shape performance in March. The benchmarked index dipped into as low as 1,774 before reversing and closed with a 0.5% MoM gain in end-March. Persistently weak Ringgit and crude oil prices coupled with uncertainties over the external fronts led the FBMKLCI fluctuating within 52 points range last month. On the quarterly performance basis, the 30-stock index climbed 3.6% QoQ in 1Q15 (1Q14: -0.95% QoQ) with 26 index-linked counters recording positive growth. The positive momentum has led our OR tracker list to perform strongly with 14.9% gain in 1Q15, underpinned by MITRAJAYA (+71%), ECS (+36%) and HENG HUAT (+24%). On the US front, the volatile first quarter saw the major indexes going on a rollercoaster ride. S&P 500 index posted gains for 9 consecutive quarters (1Q15: +0.44%), its longest quarterly winning streak in 17 years. U.S. stocks generally faced pressure from a rising dollar, falling oil prices and uncertainty about the timing of an expected interest hike from the Federal Reserve in 1Q15.

Continued to outpace the FBMKLCI since inception despite escalating market volatility. With an additional two new TRADING BUYs added in March, we have a total of 15 stocks in our OR tracker list. Together with 59 stocks in the realised portfolio, the average total returns for the tracker stocks and realised portfolio since inception (13-Aug-2012) is 32.0%, which still outpaced the FBMKLCI’s total return of 21.0% for the same period.

Challenging 2Q15 outlook. The persistently weak Ringgit (against the dollar), geopolitical tension, depressed oil prices, as well as concerns over the country’s sovereign credit rating are expected continued to cloud the market’s direction in 2Q15. Thus, in order to sail through the challenging waves, investors should continue focusing on the resilience, export-oriented, and construction sectors. We expect the FBMKLCI to continue to be trapped in the range-bound trading mode in the coming quarter with ideal entry level set at 1,800 and below. Buy-On-Weakness and trading-oriented strategies are still the preferred approaches for 2Q15.

Source: Kenanga