Given the still weakening Ringgit and on-going 1MDB saga coupled with the external Greek debt crisis, the rebound spurt arising from the Fitch’s upgrade last week is likely to be short-lived. In fact, the Ringgit has moved back closer to the previous pegged RM3.80 level against the USD. With the lack of any meaningful catalyst, the FBMKLCI could be poised for a near-term consolidation and we expect a sideways trading pattern this week within the 1,710-1,750 range. Our preferred Buy-on-Weakness level is <1,735 while Sell-on- Strength level is >1,810. On portfolio performance-wise, we had a mixed performance against the benchmark index. On YTD basis, all our portfolios still outperformed the benchmark index by 508-1,752bps.

Temporary relief but… Bucking market consensus, which was expecting a downgraded, if not maintained, credit agency Fitch upgraded the country’s outlook rating to “stable” from “negative” last Tuesday. This provided some relief to market sentiment, which has been bogged down by the on-going 1MDB saga for months now. However, the “feel-good” mood could be short-lived given that the 1MBD issues remain while the macro issues of the weak Ringgit and crude oil prices are still lingering. In fact, the Ringgit rebounded only on Wednesday, the day after the Fitch’s upgrade but has moved back to closer to the previous pegged level of RM3.80. Hence, we reckon that the FBMKLCI could be poised for a near-term consolidation and we expect a sideways trading this week within the 1,710-1,750 range. Following our 3Q15 strategy, which was released last week, our preferred Buy-on-Weakness level is <1,735 while Sell-on- Strength level is >1,810, which is also our end-2015 target. Our 3Q15 top picks are BJTOTO (OP; TP: RM3.72), TM (OP, TP: RM7.80), TOPGLVE (OP; TP: RM7.90), SASBADI (TB, TP: RM2.68), MPI (OP, TP: RM8.90), SLP (OP; TP: RM1.76), MITRA (OP; TP: RM2.35), CENTURY (TB; TP: RM1.19), ARMADA (OP; TP: RM1.55), BJAUTO (OP; TP: RM3.14) and PESTECH (OP; TP: RM6.11).

A roller coaster week. As Greece started capital control last Monday, which tumbled bourses around the globe, FMBKLCI was not spared and fell 1.08% on the first day of trading last week, which sent the key index below the 1,700-mark for the first time since last December. Nonetheless, the unexpected upgrade in the country’s outlook by Fitch helped to boost market sentiment, which drove the overall market higher. The Wednesday’s rally was broad-based where investors snapped up heavily bashed down blue chips such as DIGI (+2.41% WoW), TM (+2.70%) and CIMB (-0.36%). The better market performance also reflected the decline in foreigner’s net outflow of RM251m as of last Thursday vs. the week before of RM825m, albeit foreigners remained as net sellers for 11th straight day. At last Friday’s closing bell, the FBMKLCI closed 23.77pts or 1.39% higher to settle at 1,734.24, led by IOICORP (+6.55%), IHH (+3.88%) and BAT (+6.58%) On Wall Street, US stocks generally started the week with losses after Greece imposed capital control following a breakdown in bailout talks with its creditors. The overall market managed to recover from earlier losses during the last part of the week on improving economy reports such as job and manufacturing data. However, investors remained cautious in taking profits awaiting the FOMC meeting in the 2H of this week.

Better portfolio performance with all portfolios posting positive return last week. However, only Thematic Portfolio which posted weekly gain of 1.79% managed to outpace the barometer index (+1.39%), thanks partly to HARTA (+5.23%), while DIVIDEND YIELD and GROWTH Portfolios registered weekly gain of 1.00% and 0.60%, respectively. YTD, GROWTH Portfolio remained the top performer with 17.92% total returns followed by THEMATIC (+8.21%) and DIVIDEND YIELD Portfolios (5.48%) while the benchmark index only reported 0.40% YTD total returns. On the other hand, we decided to add 15,000 XINHWA shares @ RM0.895/share into our THEMATIC and GROWTH Portfolios last Friday attracted by its undemanding valuation of FY16E 8x PER, which is supported by sustainable 14%-16% earnings growth for the next two years, compared to peers’ 10x-11x. Meanwhile, we also added another 5,000 BJTOTO shares @ RM3.30/share into the DIVIDEND YIELD Portfolio last Friday, averaging down our investment cost to RM3.30/share from RM3.54/share previously, as we believe the share price should have bottomed with attractive yields as plus points.

Source: Kenanga Research - 6 Jul 2015