Local trading sentiment improved last week, partly fueled by positive newsflow from Tenaga, which reportedly submitted the lowest bid for Edra Global Energy Bhd. Meanwhile, the reactivated ValueCap fund is expected to start operations in the near-term after it receives its capital injection this month, which bodes well for the local market sentiment. Thus, barring major negative surprises, we expect the benchmark index to trend higher at between 1,680 and 1,720 this week. Portfolio-performance-wise, we saw an impressive weekly performance, thanks to the strong performance of PESTECH. On YTD basis, all the portfolios continued to record positive returns and outpace the benchmark index by 548-3,105bps.

Testing higher. The FBMKLCI is likely to test the 1,700 psychology level this week barring major negative surprises from the global economy as well as the local corporate earnings scorecard. Technically, should the local bourse manage to cross the psychological level, there is a chance for the key index to re-test its recent closing high at the 1,718 level. On the flip side, if it fails to break the 1,700 level, we expect the benchmark index to retreat to the 1,680 level this week. On the corporate earnings front, out of the 38 companies under our 136 core coverage list that have reported their respective 3QCY15 result over the past three weeks, 25 companies (or 65.8%) performed within our expectations while 6 (or 15.8%) were above. Notable mid-to-big caps’ report cards scheduled to be released during this shortened trading week include KLCC (Wednesday) and MBSB (Friday).

Sentiment improved. Positive trading sentiment has returned to the local market last week after Tenaga (TNB) reportedly submitted the lowest bid for Edra Global Energy Bhd. TNB valued the energy assets at slightly above RM8b, which is about 20% lower than the closest competing bid from a foreign consortium. The news resonated well with investors as the utility giant may no longer be in the bidding front line which powered its share price by 3.5% to RM13.10 last week and contributed 5.3 points to the FBMKLCI. On top of that, despite the crude oil prices and MYR continuing to stay lacklustre, the external picture has somehow improved with more US corporates reported better-than-expected 3Q15 report cards. At last Friday’s closing bell, the barometer index increased 1.2% or 19.99 points to settle at 1,685.70, which was led by TNB (3.5% WoW), GENT (5.3%) and PCHEM (3.5%). On Wall Street, US stocks scored solid gains last week following the release of some encouraging economic data. The positive sentiment was somehow tempered on comments from Federal Reserve Chair Janet Yellen implying that Fed policy makers are still considering raising interest rates in the December 15-16 meeting.

PESTECH – the STAR performer. Most of our portfolios have outperformed the benchmark index last week with GROWTH portfolio (11.8% WoW) taking the lead followed by THEMATIC (8.9% WoW) and DIVIDEND YIELD (0.9% WoW) portfolios. The robust performances of the GROWTH and THEMATIC portfolios were mainly led by PESTECH, which surged 70.0 sen or 11.5% WoW to RM6.80. We believe, the rally could potentially be spurred by its new projects newsflow as the group may be closing in on a new contract in coming weeks. On top of that, we also bagged 5.1 sen dividend into our DIVIDEND YIELD portfolio last week after Digi’s third interim tax exempt dividend went ex on 6-November. On a YTD basis, GROWTH Portfolio remains the top performer with YTD total returns of 29.77%, as compared to FBMKLCI’s -1.28%, followed by THEMATIC (+20.93%) and DIVIDEND YIELD Portfolios (+4.20%).

Source: Kenanga Research - 9 Nov 2015