The FBMKLCI is expected to trade in a sideway mode this week with some downside bias. We are issuing our 4Q15 strategy report this week and we expect the benchmark index to be trapped in a wide trading range of 1,570-1,720 levels. Having said that, we believe the barometer index may have found a near-term floor level in late-August. Hence, a selective “BOW” strategy is our preferred strategy for 4Q15. Portfolio-performance-wise, all our model portfolios underperformed the benchmark index last week but still outpaced the benchmark index by 737-2,909bps on YTD basis.

Be selective. The FBMKLCI is expected to trade sideways (with downside bias) at the range of 1,610-1,650 this week due to the dearth of major domestic economic news coupled with a persistently weak Ringgit. Meanwhile, we are issuing our 4Q15 investment strategy this week where we believe the market will likely be trapped in a wide trading range. A Buy on Weakness (“BOW”) strategy is our preferred game plan for 4Q15 as we reckon the FBMKLCI’s near-term floor level could have been found at 1,503 (or at 1,430 level under the worst-case scenario). Strategy-wise, we continued to favour: (i) big caps & GLCs, (ii) selective theme plays (i.e. export-oriented (benefit from the weak MYR), plantation (for rebound play)), (iii) resilience sectors (i.e. consumer & telco), and (iv) bashed-down stocks (i.e. at the 52-week low level). Our top 10 stock picks for the 4Q15 are ARMADA (OP, TP: RM1.17), KIMLUN (OP, TP: RM1.63), MPI (OP; TP: RM8.28), PESTECH (OP, TP: RM6.49), PHARMA (OP, TP: RM6.95), PWROOT (TB; TP: RM2.58), SLP (OP; TP: RM1.87), TAANN (OP; TP: RM4.80), TM (OP, TP: RM7.33) and TOPGLV (OP, TP: RM9.16).

Choppy trading mode remains. The performance of the FBMKLCI last week played out as per our earlier prediction where the index started the week on a negative note and even dived below the psychological 1600-level as concerns over slowing economic growth in both China and the global economy. On top of that, the Federal Reserve’s Sept. 17 decision to leave interest rates on hold also raised doubts about the health of the U.S. economy. The pessimistic mode somehow eased towards the end of the week, in tandem with the regional markets' performance, following the release of some positive U.S. economic data. At last Friday’s closing bell, the barometer index improved by 0.85% or 13.8 pts to close at 1,628.80, which was led by SIME, IOICORP, and KLK. On Wall Street, stocks remain choppy last week as investors continued to examine the depths of China’s slowdown and search for clarity on the timing of an interest rate hike. Meanwhile, expectations of the upcoming third-quarter results season which is set to kick-off in the middle of the month, remained gloomy at 3.9% YoY decline (based on Thomson Reuters data) with half of the S&P sectors estimated to post lower profits as a result of falling oil prices, weak global demand and a stronger U.S. dollar.

Against the odd. Despite the FBMKLCI recording a positive weekly return, all our model portfolios failed to beat the market last week. The GROWTH portfolio was the worst with fund value lowered by 0.9%, narrowed its YTD gain to 24.1%. The DIVIDEND YIELD portfolio’s performance, meanwhile, was relatively flattish with fund value weakened marginally by 0.04%, due to the lower share price performance in BJTOTO, although this was partially cushioned by a better performance in DIGI. On the other hand, the THEMATIC portfolio was up by 0.49% WoW, thanks to the better performance in HARTA (+1.4% WoW). All in all, we do understand that our invested amounts in all the model portfolios are low for now as we are still waiting for a better timing (~1,610-1,570) to rebuild our portfolios.

Source: Kenanga Research - 5 Oct 2015