With the disappointing 3QCY15 earnings report card, we expect more brokers to trim their targets for the FBMKLCI over the next few days. On a positive note, both crude oil prices and MYR are likely to rebound technically, which should help to buoy market sentiment. Nonetheless, the benchmark index is expected to continue trading in a sideways pattern above all its key SMA levels within the range of 1,670-1,690 while upside could be capped given that trading volume has declined in tandem with the Stochastic entering overbought territory. We maintain our view that investor should Sell-on-Strength if and when the index surpasses 1,700. Portfolio-performance-wise, we had a lacklustre week despite the FBMKLCI posting gains, no thanks largely to declines in mid-to-small caps such as HARTA, PESTECH and LUXCHEM. However, our portfolios still outperformed the benchmark index by 456-3,104bps based on YTD total returns.

To trade in a tight range. The positive push from the recovery in crude oil prices and MYR may be offset by the dismal 3QCY15 earnings report card. As of last Thursday, a total of 116 companies under our coverage released their earnings with 38% of them coming below expectations while only 15% beat our estimates. With similar trend seen in consensus estimates, we are likely to see more brokers trimming their index target over the next few days. On a positive note, both crude oil prices and MYR are likely to rebound to their recent highs based on technical readings. Technically-speaking, the benchmark index is expected to trade in its sideways pattern above all its key SMA levels within the range of 1,670-1,690 while upside could be capped as trading volume has declined in tandem with the Stochastic entering overbought territory. We maintain our view that investor should Sell-on-Strength If and when the index surpasses 1,700.

Up but not convincing for the local market. Although the local market trended up last week, trading volumes were thin as investors were indecisive with mixed market sentiment. Corporate earnings reports were generally disappointing, which saw nearly half of the results coming in below expectations with only a few outperformers. However, the recovery in crude oil prices sent SKPETRO (+6.13%) to its 3-month’s high. Nonetheless, the strengthening of MYR against the greenback last week prompted players to lock-in their profits on exporters such as glove makers HARTA (-9.40%), KOSSAN (-9.89%) and TOPGLOV (-2.91%) as these stocks had rallied strongly since the plunge in MYR. At last Friday’s closing bell, the barometer index advanced 1.25% or 20.70pts to settle at 1,682.59, which was led by TENAGA (+3.66%) after it failed in its bid for the 1MDB’s Edra Global power assets, which clear the overhanging concern. Other key index movers were IOICORP (+6.60%) and MAYBANK (+1.44%). On Wall Street, US stocks generally closed flat with reduced trading volume ahead of the Thanksgiving break as investors were in a holiday mood. In addition, a slew of economic data releases last week convinced investors that an interest rate decision is probable during the upcoming FOMC Meeting in mid-Dec.

A lacklustre week for the portfolios. With market focused on heavyweights, investors took the opportunity to take profits on mid-to-small caps and exporters which had handsomely rallied over the past months riding on weak oil prices and MYR. This resulted in our portfolios with such exposures being hit badly such as THEMATIC and GROWTH Portfolios. THEMATIC Portfolio lost 11.88% WoW, which was led by HARTA and PESTECH (-3.04%) whereas GROWTH Portfolio, which contracted 5.32%, has invested in PESTECH and LUXCHEM (-4.05%). DIVIDEND YIELD was the least affected with only 0.77% decline in portfolio value thanks to DIGI (+0.39%) against the FBMKLCI‘s weekly gain of 1.25%. Nonetheless, both mid and small caps driven THEMATIC and GROWTH Portfolios still outperformed the barometer index handsomely on a YTD total returns basis, with portfolios gaining 21.33% and 29.67%, respectively, while the key index’s YTD total returns were -1.37%. On the other hand, DIVIDEND YIELD Portfolio’s YTD total returns were 3.28%.

Source: Kenanga Research - 30 Nov 2015