The local market is expected to stay lacklustre as investors await fresh leads. Furthermore, the barometer index is perched at the oversold level; hence, any rebound could be only technical and short-lived without the emergence of key catalysts. Thus, we expect the FBMKLCI to trade at the 1,690-1,730 range this week but with downward bias. Strategy-wise, we are adopting a selective buying strategy for now with key focus on export-oriented stocks and some bashed-down blue chips. On portfolio performance, all our model portfolios went south last week in tandem with the weak market but still outperformed the benchmark index by 605- 1,893bp on a YTD basis.

Rebound imminent but may be short-lived. The lack of fresh catalysts will see local investors continue staying on the sidelines while foreign funds appear to be still reducing their shareholdings of Malaysian companies, no thanks to the weak currency outlook, sovereign rating review, on-going 1MDB saga, as well as relatively rich market valuation (vs. its regional peers). On top of that, the prolonged Greece’s debt issue also dampened global sentiment and led investors to lower their risk appetite to equities, especially exposure in the emerging markets. Foreign institutional investors remained net sellers last week with total net outflows standing at RM824m and remain as net sellers for the 9th consecutive week. On a YTD basis, the cumulative net foreign outflow stood at RM8.5b vs. the RM6.9b for the entire 2014. Technically speaking, while we believe the market is oversold, any technical rebound may likely be only technical and short-lived given the absence of key catalysts. Thus, we expect the FBMKLCI to trade at the 1,705- 1,730 range but likely with downside bias. Should the key index fail to hold above the 1,705 level, it could deteriorate further towards 1,690 and 1670 next. Strategy-wise, we would be selective buying for now with key focus on the export-oriented stocks (i.e. MPI (OP; TP: 8.90), HARTA (OP; TP: RM9.50), VITROX (TB; FV: RM3.84), MMSV (TB; FV: RM0.95) and etc.) and some bashed-down blue chips (i.e. TM (OP, FV: 7.80) and DIGI (OP, TP: RM6.69)).

Greece woes dampen investor appetite risk for equities. Fund selling of Telco and Banking index-link companies led the FBMKLCI closing lower at 1,710.34 (-0.66% WoW) last Friday, which was the lowest since 8-January as the Greek debt resolution issue as well as 1MDB saga and weak currency outlook weighed on market sentiment. The Ringgit, meanwhile, weakened 0.6% WoW to RM3.768 last Friday as of 5pm on speculation of sovereign credit rating downgrade by Fitch and has dipped 2.7% this month and reached a nine-year low of RM3.772 vs. USD on June 8. On Wall Street, US stocks were generally lower last week as investors monitored the Greece bailout talks. Euro zone finance ministers on Thursday concluded a meeting to give Greece and the institutions overseeing its bailout more time to agree on conditions for aid. Negotiations are expected to stretch into the weekend, as significant differences remain over pension cuts and other aid conditions. Without a deal, Greece is set to default on a June 30 payment to the International Monetary Fund, according to the Wall Street Journal.

None of our portfolios were spared the sell-down which was caused by the continued foreign selling activities. The DIVIDEND YIELD portfolio suffered the most with its fund value weakened by 0.95%, which narrowed its YTD total return to 5.04%, vs. the FBMKLCI’s YTD total returns of -1.01% after suffering 0.66% WoW loss last week. Delving deeper, DIGI was the main culprit (-3.4% WoW) which dragged down overall DIVIDEND YIELD portfolio performance. Meanwhile, THEMATIC and GROWTH portfolios suffered less, with values reduced by 0.62% and 0.23% respectively, lowering their YTD gains to 6.88% and 17.92%, which still outpaced the FBMKLCI’s performance for the same period. 

Source: Kenanga Research - 29 Jun 2015