With Ringgit heading to a new low coupled with still southbound crude oil prices, the local market is likely to stay range-bound this week between 1,690 and 1,745 with a bearish bias, as the market has no compelling reason to march the FBMKLCI higher. TENAGA is likely to be in the focus again this week for its earnings results which we expect to be weaker due to tariff rebate. The US FOMC meeting later this week is likely to be a nonevent again as Fed interest rate is widely expected to stay unchanged at 0.25%. Meanwhile, thanks to the rallies in PESTECH and CENTURY which saw their share prices hitting all-time highs, we had the best ever YTD portfolio performance last week for all our three portfolios, which outpaced the benchmark index by 932-2,868bps.

The rain has yet to stop. Looks like we have yet to find a way to overcome the current lethargic market sentiment. Macro issues like the weaker Ringgit, which hit a new low again last Friday, is still weak against the greenback while crude oil price is also heading to southbound, do not bode well for the overall market sentiment. All eyes will focus on TENAGA (-0.65%) this Thursday for its 3Q15 report card in which we expect weaker earnings compared to 1Q15 and 2Q15 given the 2.25 sen/kWh rebate to customer. This may not go down well with investors already grappling with the potential acquisition of 1MDB power assets by TENAGA. Another key corporate earnings to watch this week is PBBANK (+0.11%) while the US FOMC meeting in the later part of this week on interest rate hike decision is likely to be a non-event where market is expecting the interest rate to stay at 0.25% level, at least until September. Under such conditions, the local market is likely to stay range-bound between 1,690 and 1,745 with a bearish bias.

Another sluggish week for the local market. For almost the whole of last week, the FBMKLCI was in the red, except Tuesday, as investors reluctantly took positions given the lingering macro issues such as weak MYR and crude oil prices while sentiment was obviously affected by the overall poor US market performance. Investors sold down planters SIME (- 1.28%), IOICORP (-2.09%) and KLK (-2.09%) on softening CPO prices amid falling commodities prices globally but exporters like glove makers KOSSAN (+7.45%) and TOPGLOV (+1.46%) made new highs on MYR weakening. At last Friday’s closing bell, the FBMKLCI closed 5.97pts or 0.35% lower to settle at 1,720.76.24, led by AMBANK (-4.25%), SIME and IOICORP. On Wall Street, US stocks were generally pressured by weak corporate earnings, which led the Dow to retrace back into the red this year, as of last Thursday. Not helping was US crude dipping below the USD50/bbl-mark for the first time in more than three months.

The best ever YTD portfolio performance so far, thanks largely to small caps PESTECH (+10.29%) and CENTURY (+19.35%) which saw both stocks hitting all-time highs. We believe PESTECH is close to securing a c.RM300m worth of contract locally while investors snapped up CENTURY, which is still a laggard for the currently sought-after logistic stocks, for its compelling valuation and attractive yield. With these two stocks performing commendably, all our portfolios posted impressive performance with GROWTH Portfolio being the top weekly performer with 9.58% weekly gain, as against FBMKLCI’s -0.35%, followed by THEMATIC (+7.48%) and DIVIDEND YIELD (+4.83%). On the other hand, on YTD basis, all our three portfolios did far better than the barometer index which posted YTD total loss of 0.36%. GROWTH Portfolio remained as top gainer with YTD total returns of 28.32%, as opposed to THEMATIC Portfolio’s 16.89% and DIVIDEND YIELD’s 8.96%. This again proved that a well-balanced portfolio with exposure between big and small caps could generate better returns in all weather conditions. 

Source: Kenanga Research - 27 Jul 2015