We expect the FMBKLCI continued its choppy mode this week ahead of the crucial December’s FOMC meeting. Meanwhile, the uninspiring 3QCY15 report cards also provide the investors lesser reason to cheer. Technically-speaking, the FBMKLCI is still weak, underpinned by the listless key momentum indicators. We continue to view that the local bourse will trend with downside-bias to test the immediate support at 1,660 level. Thus, in view of the higher volatility ahead, we have liquidated all our model portfolios last Friday, which have outperformed the FBMKLCI total return by 547 – 3,236 bps, which marked the third consecutive year of outperforming. Moving forward, we will unveil our 2016 model portfolios on 4th of January mainly focussing on (i) M&A and (ii) export-oriental sectors/stocks. We believe ‘focused theme plays” and “range-trading strategy” will be the key to success in 2016.

Expecting a jerky week ahead. We expect the FBMKLCI to continue its choppy mode but with downside bias this week ahead of the crucial December’s FOMC meeting, where the market is expecting the Fed to graduate from the crisis-level rates at its meeting, hiking rates for the first time in nearly a decade. On top of that, the uninspiring 3QCY15 local corporate report cards have led most of the research houses to either maintain or reduce their index earnings forecast, thus providing a lesser reason to cheer. Technically speaking, the FBMKLCI is likely to remain directionless with the MACD and Stachastic indicators appear increasingly fragile, suggesting downside bias. Immediate support for the FBMKLCI is located at 1,660 (S1) and 1,600 (S2) while overhead resistance is located at 1,700 (R1) and 1,727 (R2) level.

Higher volatility risks. The world equity market sank most of the time last week after (i) Federal reserve Chair Janet Yellen reiterated her optimism over the U.S. economy, paving the way for a December rate hike, and (ii) Europe’s Central Bank (“ECB”) unveiled plans to stimulate the continent’s ailing economy that fell short of investor expectations. Markets had been anticipating strong action from the ECB in the run-up to its policy announcement on last Thursday. Expectations were high after ECB’s chief signalled the bank wold act decisively to prevent deflation or an economic contraction. Nevertheless, the ECB disappointed investors by cutting a key interest rate less than expected and not stepping up QE as expected. Back home, the local equity had experienced a mild choppy trading section with the FBMKLCI range bound within 23.3 points last week. Portfolio rebalancing was the name of the game in the early part of last week, followed by the release of Shariahcompliant securities list by Security Commission. While the dusts appear to have stabilised in the middle of the week, the trading sentiment has somehow affected by the negative mode across the region after a favourable comment by Fed’s chair lady and ECB’s disappointing action plan. At last Friday’s closing bell, the barometer index weakened by 0.87% or 14.7pts WoW to settle at 1,667.87, which was led by SIME (-4.1%), TNB (-1.5%) and IOI (-4.2%).

Celebrate our Christmas holiday early. In view of the higher volatility ahead coupled with unfavourable macro factors, we have decided to close all our model portfolios last Friday (based on their respective closing price). With that, our portfolio recorded a third consecutive year of outperformance and beat the FBMKLCI total return by 547–3,236bps (2013: 740-1,954bps with a total return of 21%-33%; 2014: 1,798-2,455bps and 14%-21% in total returns). GROWTH portfolio (29.87%) was our top performer followed by THEMATIC (22.33%) and DIVIDEND (2.98%) portfolios vs. -2.49% total returns in the FBMKLCI.

2016 model portfolios to be unveil on the 4th of January. In view of the current unfavourable macro factors, we believe ‘’focused theme plays’’ and “range-trading strategy” will continued to be the key to success in 2016. A part of the usual blue chips' selection, our stock picks will likely focus on M&A, and export oriented counters/sectors. Dividend yield counters, however, may see headwinds should U.S. Fed decided to start raising interest rate. Note that, in view of the reallocation of our internal resources, we have decided to review our portfolio performance once a month moving forward instead of the usual weekly basis.

Source: Kenanga Research - 7 Dec 2015