With crude oil prices and Ringgit still grappling to find a bottom, the FBMKLCI is likely to trade sideways this week between 1,526 and 1,600. In addition, the recent global sell-off which is still showing no sign of abating, plagued by fears of slowing Chinese growth, will add more downside pressure to the local market. While we originally thought that the local market could have found a temporary bottom as the historical volatility for FBMKLCI in various time frames has started to show a sign of contraction, the poor overnight performance of Dow Jones Industrial Average, which fell ~531 points, could prompt FBMKLCI to retest its recent low of 1,557.01. Violation of which could see the benchmark index testing 1,530/20 support zone and 1,500/1,490 next. Portfolio performance-wise, we had a better week, following our major disposal decision in the previous week, except the DIVIDEND YIELD Portfolio which underperformed the benchmark index slightly. Nonetheless, all our portfolios continued to outpace the benchmark index by 891-2,996 on YTD basis.

Still oversold, so? The macro environment remains fragile with crude oil prices hitting new lows while MYR has yet to find a bottom. The regional markets were dampened by Chinese Yuan devaluation and the bombing in downtown Bangkok. While we originally thought that the local market could have found a temporary bottom as the historical volatility for FBMKLCI in various time frames has started to show a sign of contraction, the poor overnight performance of Dow Jones Industrial Average, which fell ~531 points, could prompt FBMKLCI to retest its recent low of 1,557.01. Violation of which could see the benchmark index testing 1,530/20 support zone and 1,500/1,490 next. For the week, we believe 1,600 and 1,526 should as a good trading range. Newsflow wise, as we are entering the final leg of the 2QCY15 reporting season, corporate results announcement will likely be the key focus.

A lacklustre week. Last week, the local market started the week hitting a 3-year’s low amid the continued weak MYR and crude oil prices. Although the benchmark index managed to buck the regional downtrend for the next two days on bargain hunting activities, market mood remained generally gloomy. Oil & gas stocks, such as SKPETRO (-15.54%), COASTAL (+3.26%) and PERISAI (-12.50%) came under heavy selling presume as oil prices fell to new lows. Meanwhile, glove makers, HARTA (+1.47%), KOSSAN (+4.66%), TOPGLOV (+12.32%) and SUPERMX (+11.37%) rebounded as MYR continued to slide lower. In fact, TOPGLOV hit a new all-time high last Friday. At last Friday’s closing bell, FBMKLCI fell 1.39% or 22.15pts to settle at 1,574.67, which was led by PBBANK (-2.75%), SIME (-5.23%) and SKPETRO (-15.54%). On Wall Street, US stocks were badly hit as fears of China’s growth prospects spurred a global sell-off. The selling accelerated last Thursday which saw the Dow declining 2.8%, the biggest percentage decline since Feb last year and the index is now at its lowest level since last Oct.

Better portfolio performance. Following our decision to dispose CAB (-1.50%) and CENTURY (-3.51%) in the previous week, we had a better portfolio performance last week, except for DIVIDEND YIELD Portfolio which saw its YTD total returns falling to 0.42% after a 1.78% WoW drop. THEMATIC Portfolio was the weekly winner with 1.36% gain, extending its YTD total returns to 9.98%, following rebounds in HARTA and PESTECH (+0.57%). Meanwhile, GROWTH Portfolio remained as top performer based on YTD basis with total return of 21.47% after a 0.86% weekly gain. These performances are commendable given the current weak market condition where the 30-stock index reported a YTD total loss of 8.49% after a 1.39% weekly loss. We understand that we have limited invested stocks in our portfolios but this is the best we can do during this high volatility market condition to preserve our capital and gains. We are looking for appropriate times to re-enter the market as certain stocks appeared to be deeply oversold with attractive valuations. Stay tuned.

Source: Kenanga Research - 24 Aug 2015