The local market is expected to consolidate further within the range of 1,790 and 1,845 with downward bias while awaiting new catalysts to emerge while corporate earnings results will continue to be in the limelight this shortened trading week. On portfolio performance, in tandem with the overall weak market performance, all our model portfolios suffered negative growth last week, albeit at much smaller magnitude. In all, all our three portfolios still outperformed the benchmark index by 503-1,750bps YTD.

Heading towards our ideal B.O.W. level. The local market is expected to trade sideways but with downside bias in this shortened trading week, at between 1,790 and 1,845. To recap, we earlier highlighted in our 2Q15 strategy report (dated 3rd of April) that the market could be trapped in a wide range-bound mode but with upside likely capped at 1,855 (implying c.20x and c.19x PERs to our FY15 and FY16 earnings estimates) with an ideal Buy-on- Weakness (B.O.W.) level set at 1,790. In view of the current lack of major catalyst and less attractive valuation in contrast to the regional peers, we believe the local bourse may be approaching our B.O.W. level this week. Corporate earnings, meanwhile, is expected to remain in the limelight this week. Key corporate results to watch this week include Hartalega (5th of May); Gas Malaysia and MBSB (7th of May). Technically speaking, the FBMKLCI is expected to see strong support at 1,800 psychological support, failing which, could see the index consolidating towards 1,780. On the flip side, the immediate resistance for the index is located at 1,820 followed by 1,846 next.

Short-term correction finally kicked-in. After seven weeks of uptrend with the key index rising to a 7-month high, a healthy short-term correction has finally kicked-in last week as per our earlier prediction. Mid-and-small-capitalisation stocks, meanwhile, also faced sell-downs last week ahead of the long weekend. At last Friday’s closing bell, the FBMKLCI ended 44.31 pts (or -2.38% WoW) lower to settle at 1,818.27. The top three weekly index laggards were AXIATA (-3.6%), CIMB (- 3.2%) and MAYBANK (-2.2%). On the corporate earnings' front, 23 companies (out of our 134 stocks universe) had reported their respective results thus far (as of last Wednesday), of which two companies (or 8.7%) came in above expectation while the majority (19 companies or 82.6%) met our estimate.

FOMC opens the door to rate hike. On Wall Street, trading remained choppy after the Federal Reserve left open the chance of an interest-rate hike as early as June, in a statement following its two-day policy meeting last week. However, market expectations remained for a rate hike later in the year following poor economic indicators over the past several months. On the other hand, the central bank also highlighted in its latest statement that a weak first quarter was merely due to “transitory factors” which placated investors worried over the economic recovery. The latest rounds of US corporate earnings reported last week, meanwhile, were a mixed bag. Analysts now expect 1Q15 earnings among S&P 500 companies to decline 1.7%, including the 277 companies that have so far reported results. If confirmed, this would mark the biggest decline in earnings since 3Q09, though it’s an improvement from the expected drop of 4.7% as forecasted in late March.

All Portfolios went south last week. In tandem with the overall weak broad market performance, all our model portfolios recorded negative growth last week, albeit at a much smaller scale. DIVIDEND YIELD portfolio suffered the most with its fund value weakened by 1.1% WoW, which lowered its YTD total return to 9.76% vs. the FBMKLCI’s YTD total return of 4.73% after the 2.38% WoW drop last week. GROWTH and THEMATIC portfolios, meanwhile, saw their fund values reduced by 0.54% WoW and 0.34% WoW, bringing its YTD gain to 22.33% and 9.99%, respectively. 

Source: Kenanga Research - 5 May 2015