With lack of price catalysts and the on-going 1MDB saga, market sentiment is likely to remain lacklustre this week. Nonetheless, the barometer index which is technically oversold may be poised to test the higher end of its trading range of 1,705-1,750. Meanwhile, trading value had picked up of late albeit with lower trading volume. We believe investors may have started accumulating blue chips especially bashed down heavyweights such as telcos. DIGI could be a stock to accumulate as its share price is now 3%-4% from its 52-week low. Meanwhile, we still like exporters like MPI, HARTA, VITROX and MMSV. On portfolio performance, performance was mixed with only GROWTH Portfolio outpacing the benchmark index after adjusting for the disposal of TENAGA. Nonetheless, our portfolios still outperformed the benchmark index by 603-1,844bps on a YTD basis.

Our view remains unchanged. The local market is still trapped in the 2- month downtrend channel. This week, with the lack of price catalysts and the on-going 1MDB saga, market sentiment is likely to remain lacklustre. Nonetheless, as the market is technically oversold, we reckon that the FBMKLCI is poised to test the higher end of its trading range of 1,705-1750. However, we expect higher volatility in oil prices which have been consolidating for quite a while; hence, we do not rule out a more volatile market condition especially for oil & gas stocks in near-term. Thus far, we are fairly neutral on the sector as contract flows are expected to remain slow. Meanwhile, we notice that trading value had picked up of late albeit with lower trading volume. This implies that investors may have started to accumulate blue chips especially those heavily bashed-down heavyweights like telcos. Currently, three out of the four telcos are trading as close as 3%-4% from their 52-week low. DIGI (OP; TP: RM6.69) is the only one with OUTPERFORM call among the three telcos. On the other hand, we still adhere to our Buy-on-Weakness strategy to nibble on export-oriented stocks such as MPI (OP; TP: 8.90), HARTA (OP; TP: RM9.50), VITROX (TB; FV: RM3.84) and MMSV (TB; FV: RM0.95).

Another lacklustre week. The local market had a slow start last week as the USD/MYR exchange rate fell further nearing to the previous peg-level of RM3.80 while the FBMKLCI traded at a tight 10 index-points range for the remainder of the week. Investors were hesitant to take position on concerns of FGV’s (-5.91% WoW) acquisition of Indonesian-based PT Eagle High Plantation and TENAGA’s (-2.87%) takeover of Project 3B from 1MDB. In fact, TENAGA faced heavy selling-down in last Thursday’s afternoon session, tanking by as much as >6% before it closed >4% lower, following the Minister’s remark that the government has agreed to TENAGA taking over 1MDB’s 70% stake in Project 3B. At last Friday’s closing bell, the benchmark index closed 12.60pts or 0.73% lower to settle at 1,721.77 with TENAGA being the biggest index’s lagger followed by SKPETRO (-7.34%) and IHH (-3.39%). On Wall Street, US stocks generally closed higher, largely attributable to a dovish Fed statement following the FOMC meeting where Fed reiterated its stand to be accommodative. In fact, the US markets rallied across the board last Thursday with Nasdaq setting a new record high, since the last rally during the dotcom boom in early 2000s.

Mixed portfolio performance, which was in line with the overall market performance. We have two portfolios namely GROWTH (+0.89) and DIVIDEND YIELD (-0.57%) which outpaced the benchmark index (-0.73%) while THEMATIC Portfolio’s fund value fell 1.21% over the week. While our invested bigger caps posted lower share prices, small caps like CAB (+6.67%) and CENTURY (+4.05%) rebounded strongly from the recent weakness which were partly attributable to the outperformance of the two portfolios mentioned above. Last Thursday, we decided to close our position in TENAGA following the uncertainty of the 1MDB issue which resulted in a RM1,200 loss for each portfolios. Adjusting for this, GROWTH Portfolio was the only portfolio that outperformed the FBMKLCI. Nonetheless, all our portfolios continued to outpace the barometer index (-0.39%) on a YTD total returns basis with GROWTH Portfolio remaining as top gainer (+18.05%) followed by THEMATIC (+7.25%) and DIVIDEND YIELD Portfolios (+5.64%).

Source: Kenanga Research - 22 Jun 2015