Overall market sentiment remains upbeat as the two key factors, the recovering MYR/USD and Crude oil prices, are holding well from their previous weaknesses. The strong US market also helped to encourage local investors to return to the market. Besides, the early batch of 4QCY16 results releases was fairly satisfactory. All these helped to keep up the market momentum. Technically speaking, the local market is on an uptrend as the key index is trending along its uptrend channel and above all key moving averages. Key upside resistance is capped at 1,700-1,720 with downside supported at 1,680-1,690 in the near term. Portfolio-performance-wise, all three model portfolios outperformed with GROWTH Portfolio being the top gainer in January. Meanwhile, the MPT portfolios posted two distinctive results with MAXIMUM RETURN Portfolio beating FBMKLCI by 5-fold while the MINIMUM RISK Portfolio posted losses of 0.29%.

Market to trend higher? Overall market sentiment continued to be upbeat with rotational plays taking turns since January. This was largely helped by a stabilising MYR as well as firmer crude oil prices. In addition, the overwhelming bullish US market with the Dow at its all-time-high level helped to spur buying sentiment higher. Technically, the primary trend of FBMKLCI is positively poised with the key index trending along its uptrend channel and above all key moving averages. The prospect of the 50-day and 100-day SMA bullish crossover reinforces a positive outlook for the near to mid-term. The upside resistance is capped by 1,700-1,720 band with support levels pegged at the 1,680-1,690 level. As we are entering the busy reporting season, focus will be on earnings report cards. So far for the early batch of key earnings releases such as BURSA (+0.45%), PBBANK (+1.93%), DIGI (+2.69%) and MAXIS (+2.84%) all reported satisfactory results.

A good start of the year. It was a cautious start to 2017 as the benchmark index fell mildly on the first trading day of the year. Since then, the overall market trended upward before profit-taking activities started to kick-in just before the CNY festive season at the end of the month. The improved market sentiment was helped by a stabilised crude oil price, which ranged between USD54/bbl and USD57/bbl throughout the month, and a firmer MYR against the greenback at 4.40 level. On the other hand, investors also took their cue from the strong performance of the Dow. Buying was centred in selected bank stocks such as CIMB (+10.20%), PBBANK and AMBANK (+6.26%). SIME (+10.00%) rose higher before investors locked in their profit after it planned to spin off its plantation and property segments. At the end of January, the FBMKLCI closed 1.82% higher to settle at 1,671.54 with SIME, CIMB and GENM (+10.04%) as the index movers. On Wall Street, US stocks generally closed higher with the Dow hitting an all-time high on the back of strong earnings report cards coupled with renewed post-election rally coming from Trump’s business-friendly initiatives so far.

Better portfolio performance as well. All our portfolios performed better in January, which was in tandem with the overall positive market sentiment, beating the barometer index. GROWTH Portfolio was the top gainer with first month gain of 5.06% over the period of 16 Jan to 31 Jan, against FBMKLCI gains of 1.82%, followed by THEMATIC (+3.61%) and DIVIDEND YIELD Portfolios (+3.04%). The strong performance of GROWTH Portfolio was driven by rallies in PMETAL (+10.81%), SLP (+5.80%) and PESTECH (+3.77%). Likewise, the gains in THEMATIC Portfolio were mainly attributed to gains in invested stocks namely PMETAL and AIRASIA (+7.59%) but was mitigated by PRTASCO’s (-4.80%) losses. The rise in PWROOT (+9.13%) helped mitigated the loss in PRTASCO that pushed up fund value of DIVIDEND YIELD Portfolio. On the other hand, the two additional model portfolios based on Modern Portfolio Theory showed two distinctive performances whereby MAXIMUM RETURN Portfolio posted strong returns of 9.4% whereas MINIMUM RISK Portfolio reported 0.29% decline in portfolio value.

Two distinct performances for the MPT portfolios. The performances of the two MPT portfolios showed two distinctive results where the MAXIMUM RETURN Portfolio reported superb total monthly returns of 9.45%, which is better than the benchmark index’s 1.82%. This was mainly helped by the strong price performances in two of the four invested stocks, namely PMETAL and SLP as prices rallied 25.41% and 7.88%, respectively, in the month of January, But, the MINIMUM RISK Portfolio posted a 0.29% loss in monthly returns in January as the share prices of its key holdings, safe-haven stocks FBMKICI-EA and KLCC declined by 0.86% and 5.38%, respectively, last month. Although this is just the first month with only one sample of data, we believe the MAXIMUM RETURN Portfolio will continue to lead as opposed to the MINIMUN RISK Portfolio when the market is on an uptrend. This is because the former is focused mainly on three high beta stocks whereas the latter is well spread with eight stocks to minimise the risk exposure.

No changes in share holdings in February. After updating the stock performances in January 2017, the MPT model suggested no changes in share holdings as we believe this is due to the overall market which was mostly unchanged in the past one month whereas the performances of our selected poll of 12 stocks were also unchanged. However, for the same stock holdings for each portfolio, the estimated risk and return have changed mildly. The estimated portfolio risk for MAXIMUM RETURN Portfolio increased to 27.9% from 26.2% and estimated portfolio returns raised to 13.8% from 13.3% previously while the estimated portfolio risk for MINIMUM RISK Portfolio remains unchanged at 8.8%, the estimated portfolio return reduced slightly to 3.6% from 3.7%.

Source: Kenanga Research - 13 Feb 2017