The FBMKLCI is likely to enter into a consolidation mode this week following the continued weakness in MYR coupled with prolonged concerns over the 1MDB saga. With the lack of key positive catalysts, we expect the 30-stock index to trade between 1,560 and 1,621 but with downside bias. Note that the MYR has further weakened against the USD which hit another record high of RM4.260 last Friday, which could potentially trigger another wave of foreign capital outflows as well as market de-rating. Portfolios performance-wise, all our model portfolios recorded positive returns of 2%- 11% last week despite the weak performance in the broader market and continue to outpace the benchmark index by 885-3,073ppts on YTD basis.

Heading into a consolidation mode. We expect the local benchmark index to enter a consolidation mode (with downside bias) ahead of the US FOMC’s meeting, which is set to be held mid-September. While the Fed could potentially provide more clues (with regards to the timing of its interest rate hike) during the upcoming meeting, the persistently weakening MYR as well as the prolonged 1MDB saga is not expected to augur well for local sentiment over the near-term. Most of the brokers have lowered their respective FBMKLCI target prices after the recently concluded 2QCY15 corporate results season, which saw the ‘disappointment ratio’ surging as compared to the previous quarters. Meanwhile, we also lowered our FBMKLCI’s year-end target price to 1,680 (from 1,810) but believe it is a good time to nimble on selective stocks as a temporary market bottom could have been formed when the index hit the low of 1,503.68 (at 14.5x fwd. PER, which was below the -2SD level of 15.1x). We continue to favour most of our 3Q15 starategy’s top picks such as BJTOTO (OP, TP: RM3.72), PESTECH (OP, TP: RM6.11), DIGI (OP, TP: RM6.10). Technically speaking, the FBMKLCI is likely to consolidate further with downside-bias this week and trade between the 1,560-1,621 range.

Higher market volatility. The bulls returned strongly last Tuesday’s morning following the peaceful end to the Bersih 4.0 rally over the weekend. The FBMKLCI reached an intraday high at 1,660.72 before reaching a low at 1,603.25 towards the closing which gave the index a range of c.56.97 points. The weak momentum was mainly led by the vulnerable China’s PMI data, raising fresh fears about the health of its economy. At last Friday’s closing bell, the FBMKLCI slipped 1.46% WoW or 23.58pts to settle at 1,589.16, which was led by MAYBANK (-4.5%), CIMB (-5.0%) and AXIATA (-3.8%). Foreigners, meanwhile, continued to be net sellers last week with total weekly net outflows of RM631m. The persistent strong capital outflows have led the MYR to continue depreciating (against the greenback) and hit another record high of RM4.26 on last Friday’s at 5pm. On Wall Street, stocks continued to remain volatile. Triple-digit moves in the Dow have been an almost daily occurrence in the past month following signs of weakness in China and uncertainty over when the Federal Reserve will begin raising interest rates.

Against the odd. Despite higher market volatility as well as weak broader market performance, all our model portfolios recorded positive return last week, thanks to the strong share price performance of PESTECH (10.6% WoW), BJTOTO (4.1%) and HARTALEGA (2.4%). These winners led the GROWTH portfolio recording a double-digit gain of 10.6% WoW last week, further widening its YTD gain to 23.2%. THEMATIC and DIVIDEND YIELD portfolios’, meanwhile, saw their fund values going up by 5.8% and 2.1% last week, bringing YTD gains to 11.5% and 1.3%, respectively.

Source: Kenanga Research - 7 Sep 2015