We believe investors should adopt a “Sell on Strength” (SoS) strategy following the strong rally last week as the key index is now at the SoS zone of 1,660-1,700 which is also technically overbought. Although the RM20b injection into ValueCap will provide additional market liquidity to cushion the incessant foreign outflows, macro issues such as the weak MYR and depressed crude oil prices remain, clamping on market sentiment. This week, we expect the local market to trade at 1,656-1,700 with downside bias. Portfolio-performance-wise, all our three portfolios, albeit performed commendably, underperformed the FBMKLCI by 38- 525bps as share prices of BJTOTO and PESTECH contracted. Nonetheless, our portfolios still outpaced the benchmark index by 648-2,592bps based on YTD basis.

Worst is over? With the RM20b ValueCap money, crude price is recovering, Fed decided no interest hike this time and a slight improvement in Ringgit, look likes everything is back in order. However, with such a rapid rise, we believe that the rally could be short-lived as the FBMKLCI is highly overbought technically with a gap at 1,656 has yet to be filled. Fundamentally, the additional liquidity provided by the RM20b injection into ValueCap should help to cushion the incessant foreign outflows. Nevertheless, the macro issues of weakening MYR and lacklustre crude oil prices remain to clamp on market sentiment at least in the near-term. As the index is now at the SoS zone of 1,660-1,700; we believe investors should adopt a SoS strategy for now with the key index likely to trade between 1,656 and 1,700 this week with downside bias.

An unexpected stellar week. After weeks of lacklustre market performance, the local market rallied strongly after the PM announced that ValueCap would invest RM20b in undervalued stocks and crude oil prices recovered &6%, which helped to support beaten-down oil & gas stocks, such as SKPETRO (+10.38%) and ARMADA (+8.29%) higher. The heavily basheddown blue chip TENAGA (+8.91%) was the key beneficiary of this RM20b injection, which saw its share prices rallied to new high since June while we also saw investors snapping up laggards like GENTING (+8.86%) as overall market sentiment improved. However, profit-taking activities started to kick-in before the end of the week after three days of strong showing. At last Friday’s closing bell, the barometer index surged 4.11% or 65.85pts to settle at 1,669.45, which was led by TENAGA, PBBANK (+4.28%) and DIGI (+8.27%). On Wall Street, US stocks had a mixed week as investors hesitated to take positions before last Thursday’s interest rate decision during the FOMC Meeting while the weaker-than-expected Chinese economic data also deferred buying interest. On the other hand, the market reacted positively to the recovery of crude oil prices in the mid-week, as US Crude inventory declined.

Good portfolio performance but underperformed the market. We have only four invested stocks in the three portfolios, of which DIGI performed fairly well as investors bargain hunted for laggards while HARTA (+6.02%) continued to rise higher even after the stock went ex-entitlement of a 1-for-1 bonus issue last Thursday. However, BJTOTO (-0.32%) dropped slightly after reporting 1Q16 results, which fell short of expectations due to poorer luck factor while PESTECH (-0.71%) retreated slightly from the previous week’s gain. In a nutshell, despite underperforming the benchmark index (+4.11%), both THEMATIC and DIVIDEND YIELD Portfolios still posted fairly commendable weekly gains of 3.73% and 2.33%, respectively. GROWTH Portfolio reported a weekly loss of 1.14% as its sole invested stock fell. YTD, GROWTH Portfolio, however, remained as the top performer with total returns of 23.12% in contrast to FBMKLCI’s -2.80%, followed by THEMATIC (+12.59%) and DIVIDEND YIELD (+3.68%).

Source: Kenanga Research - 21 Sep 2015