The local market is staging to extend its technical rebound, but we believe the upside is limited given the lack of rerating catalysts. Thus, it is still a range-bound market and we are looking towards “Sell on Strength” should the key index surge above 1,710. On the other hand, the recovery of MYR and Crude oil prices in the past one week provided a much-needed reprieve to the market. This is positive for oil & gas stocks for short-term rebound play but negative for export-oriented sectors such as glove makers and semiconductor manufacturers. Meanwhile, we had a mixed performance with only the DIVIDEND YIELD Portfolio outpacing the benchmark index while the sharp decline in TOPGLOV sent both THEMATIC and GROWTH Portfolios southbound.

A short-term rebound but limited upside. With the recovery of MYR and Crude oil prices towards the end of last week, market sentiment is now turning positive after the earlier rough start to the year. The expected rebound also coincides with our ideal “Buy on Weakness” level, which is below 1,620, and the key index hit a recent low of 1,600.92 on 21st Jan. However, upside could be capped at 1,670 given the shortened trading week in the coming week for CNY festivities coupled with the just revised Budget 2016 having a neutral market impact. We also do not expect a meaningful pre-CNY rally this round as the local market is lacking rerating catalysts while the generally public sentiment remains gloomy. Technically, the immediate resistance for FBMKLCI is set at 1,670 before testing the next resistance zone of 1,690-1,710. We reiterate that the market is still in a range-trading mode and we adhere to our “Sell-on-Strength” level of 1,710 should this rebound play materialise. For a short-term rebound play, we may look at oil & gas stocks, especially those trading near through valuation with high correlation to oil prices such as SKPETRO, ALAM, COASTAL and PERISAI.

2016 started with a bang, south. The new year greeted us with jittery market sentiment around the globe. It started with the Chinese market plunging on fears of its economy slowing down, which sent other world major indexes southbound, Crude oil prices falling below USD30/bbl, the lowest in more than a decade. And this was not the end as the MYR also depreciated closer to a new recent low of 4.50 per USD in mid-Jan. All these contributed to the retracement of the FBMKLCI in Jan 2016 after a somewhat surprising rally at the end of Dec 2015. At last Friday’s closing, FBMKLCI fell 24.71pts MoM or 1.46% to settle at 1,667.80, largely attributable to the decline in AXIATA (-12.48%), MAXIS (-15.88%) and CIMB (-8.59%). Other than the first two telcos, DIGI (-9.63%) also faced heavy selling pressure in the last two trading days of January after the revised Budget 2016 on the redistribution and bidding for telco spectrum raised concerns that the operators’ earnings would be hit. In addition, exporters such as glove makers KOSSAN (-23.55%) and TOPGLOV (20.18%) as well as tech stocks MPI (12.89%) and UNISEM (17.65%) also faced profit-taking activities in the last week of the month after a quick rebound in MYR. Having said that, the decline in the local market was not as severe as opposed to Chinese indexes SSE and SZSE, which fell sharply by 22.65% and 26.83%, respectively, HSI by 10.18%, Nikkei by 7.96%, the Dow by 5.50% and even our neighbour FSSTI by 9.28%

Our portfolios: gain some lose some. We had a mixed monthly performance for our portfolios with two portfolios underperforming the barometer index. This was mainly due to the sharp drop in TOPGLOV as MYR strengthened. This resulted in the fund values of THEMATIC and GROWTH Portfolios declining 3.97% and 3.49%, respectively, over the month as compared to the key index’s 1.46% decline. Nonetheless, DIVIDEND YIELD Portfolio recorded gains of 2.20% as all invested stocks, including BJTOTO (+2.61%), TENAGA (+2.10%) and APOLLO (+1.93%) went higher. During the month, we added APOLLO into all three portfolios with 3,000 shares each on 21st Jan as we believe the stock will benefit from its earnings growth story, which will be driven by margin expansion, favourable forex and lower raw material prices.

Source: Kenanga Research - 2 Feb 2016