The local market is expected to continue its downward trend over the near term in view of the prolonged concerns over the 1MDB saga, weak Ringgit and sluggish crude oil prices. Trading sentiment is not expected to improve significantly with these lingering issues clouding market sentiment. On the external front, the timing of the US interest rate hike will continue to influence investors’ risk appetite. Portfolio performance-wise, we suffered the worst YTD weekly performance last week with funds' value being reduced by between the 5.0%-6.5% range, mainly led by the plunge in CENTURY’s share prices. On YTD basis, our portfolios continued to outpace the benchmark index by 616-2,877bps with GROWTH Portfolio remaining the top gainer.

Downside bias. The FBMKLCI is expected to continue with its downwards slide this week in view of the weak Ringgit, sluggish crude oil prices as well as the less than encouraging corporate report cards so far. On top of that, the prolonged concerns over the 1MDB saga are also expected continued to bear down on market sentiment. As long as there is no improvement in the abovementioned issues, investors will continue to be kept at bay or reducing their risk appetite. Under such scenarios, the local market is likely to re-test the 1,671 level this week before any buying interest could emerge. Having said that, we do not discount that the local bourse may trend in a sideways consolidation mode in the near term in view of the deeply oversold situation as measured by the Stochastic and RSI technical indicators.

Rising volatility. The FBMKLCI slumped 2.35% WoW to 1,682.65 last week led mainly by the selldown in TENAGA (-6.6%), AXIATA (-5.8%) and MAYBANK (-2.6%). The 30-stock index also experienced the biggest YTD percentage dip of 1.8% last Thursday, as a result of persistent foreign investor selling amid concerns grew over issues embroiling 1MDB and weakness in commodity prices. Ringgit, meanwhile, slid 2.5% last week to RM3.926 against the dollar, the weakest level since September 2, 1998, the day before the government pegged it at RM3.80 per dollar. On top of that, trading sentiment also dampened by the weak commodity prices and a slowing Chinese economy, which could potentially hurt domestic exports and government finances. On Wall Street, US stocks were mixed on patchy economic data while players wait for more concrete clues about the timing of a Federal Reserve interest rate hike, although it is widely expected for the hike to be announced either in September or December. Crude oil, meanwhile, continued to remain weak with focus remains on oversupply concern, which led both West Texas Intermediate and Brent crude dipping below the USD50/barrel-mark.

Portfolios dragged down by CENTURY LOGISTIC (CENTURY). All our model portfolios went south with funds’ value reduced by between the 5.0%-6.5% range last week. Apart from being affected by the weak broader market sentiment, our portfolios were also hit by the sharp fall in CENTURY’s share price (-12% WoW) due to a letter of demand (amounting to RM21.6m) from Nestle Products S/B for purported losses and damages. While CENTURY’s management viewed the demand as baseless and unsubstantiated, and planned to counterclaim against Nestle, the financial impact could be significant if the group failed to defend their stance given the amount of RM21.6m represents c.68% of our projected FY15 net profit. Apart from that, we also believe the demand, if successful, may diminish the group’s chances of securing more logistic contracts in the future. We are currently reviewing our call and target price, as the dispute could be dragged on for some period of time. All in, the DIVIDEND YIELD portfolio dipped the most by 6.5% WoW followed by GROWTH (-5.4%) and THEMATIC (-5.0%), narrowing the YTD gain to 3.6%, 26.3% and 14.4%, respectively, but still outpaced the FBMKLCI’s YTD performance of -2.5%.

Source: Kenanga Research - 10 Aug 2015