The overall technical picture for the local market remains fairly bearish in the short-term but is unlikely to last given that the market sentiment is likely to improve with the appointment of the new central bank’s governor last week. In addition, some bargain hunting activities have emerged after the panic selling after the 1MDB’s default. With Crude oil prices and MYR at their YTD’s highs and little negative surprises expected from the 1QCY16 results reporting season, we see little downside pressure to the market. However, with the sustained lack of key catalyst, we expect the market to remain range-bound within the range of our “Sell on Strength” of >1,725 and “Buy of Weakness” of <1,635. Meanwhile, all our portfolios posted negative returns last month, which were in line with the market’s performance while the DIVIDEND YIELD Portfolio was the only one with positive returns on YTD basis.

A short-term weakness but unlikely to be lasting. Although the local bourse turned bearish last week after 1MDB’s default, which triggered some panic selling over the past few days, we do not expect the current pullback to be lasting or deep. With the announcement of the new BNM governor appointment, market response was fairly positive as the new chief is expected to maintain policy continuity from the previous governor Zeti. Besides, the two key determining factors to the country’s economy heath, Crude oil prices and MYR are on recovery modes, which are at their YTD’s highs should limit downside pressure. Meanwhile, the early batch of 1QCY16 earnings releases in the past two weeks was generally satisfactory. Also, we believe coming reports are unlikely to be big let-downs given the rounds of earnings adjustments in the past one year. Having said that, these pleasant factors are unlikely to drive the overall market higher given the lack of catalysts to propel major buying interest. As such, we hold our view that the local bourse is currently a range bound market and we advocate a “buy on weakness” at <1,635 and “sell on strength” at >1,725. Our end-2016 index target is maintained at 1,725.

Market turned southbound at month end. After a surprise strong month in March, the key index was holding well in the first half of April which saw the FBMKLCI hitting YTD’s high of 1,727.99 in the mid-month. This was partly attributed to the recovery of Crude oil prices as well as MYR. In fact, the Ringgit was at new high against the greenback since August last year. However, the local market turned bearish towards the end of the month when 1MDB defaulted on its bond coupon payment on 27 April, which caused panic selling across the board. At last Friday’s closing, the barometer index fell 2.63% or 45.10 pts MoM to settle at 1,672.72. MAXIS (-11.81%) was the second laggard among the index stocks after the social media furore early of the month. Other celcos DIGI (-11.11%) and AXIATA (-4.24%) were also the main casualties on the irrational price war which led to the stocks meltdown. Oil & gas giant SKPETRO (-10.33%) also took a beating after its strategic partner Seadrill sold its remaining 8.2% stake in the company at 11% discount to market price. On Wall Street, US stocks generally rose higher almost throughout the month with the Dow achieving a 2016 new high and also tried to test its all-time-high since May last year, partly attributable to the rebound in Crude oil prices. However, the key index broke its uptrend at the end of the month after Apple reported its first earnings decline in 13 years on the first drop in iPhone sales in eight years.

All portfolios declined but still outpaced the market. After a good performance in March, all our portfolios retreated which were in line with the overall market performance albeit outperforming the 30-stock index as we have the index’s monthly top performer TENAGA (+2.57%) in our all three portfolios while the fall in our invested small-to-mid cap stocks were not as much as the index stocks. DIVIDEND YIELD Portfolio remains as top performer with YTD total gains of 2.68%, after a 0.80% weekly lose, beating the FBMKLCI which declined by 0.36%. This was thanks to the invested values for TENAGA and APOLLO, which improved 7.81% and 4.20% YTD, respectively. However, the portfolio values for THEMATIC and GROWTH Portfolios lost 1.86% and 1.81% to post negative YTD total returns of 1.93% and 3.35%, respectively.

Source: Kenanga Research - 3 May 2016