While the overall market sentiment remains upbeat, there is no harm for investors to take some profits off the table progressively given that the FBMKLCI is likely to continue trading in a range-bound mode, thus providing a limited upside from here. Our ideal ‘Sell On Strength’ and ‘Buy On Weakness’ zones stayed at >1,720 and 1,625/1,655, respectively. Technically speaking, although the FBMKLCI remains positively biased this month, the RSI reading is approaching to the overbought territory, thus suggesting an imminent pull-back. Portfolio-performance-wise, the GROWTH and THEMATIC model portfolios continue to outpace the FBMKLCI on monthly and YTD basis while the MPT portfolios continue to post two distinctive results with MAXIMUM RETURN Portfolio beating FBMKLCI by 1237bps whereas the MINIMUM RISK Portfolio posted losses of 2.13% on YTD basis.

Time to take a breather? The recent concluded 4Q16 results season, which shown signs of improvement, coupled with stable MYR and crude oil prices have boosted the overall market sentiment. In addition, the overwhelming bullish US market which led DJIA trading at all-time-high levels also helped to spur buying sentiment. Having said that, while these 'feel-good' sentiments could potentially be extended, we see limited index upside from here judging from our flat-to-negative earnings growth outlook in 2017/2018. Indeed, the index may continue to trade in a range-bound mode as the underlying reward-to-risk consideration has yet to turn attractive. All in, while we do not discount that the FBMKLCI could potentially swing towards 1,720-1,750 level (at +1SD and +2SD levels, based on consensus index target of ~1,765), the current index level (at >1,720) could be a good ‘Sell On Strength’ area, in our view. An ideal ‘Buy On Weakness’ index zone, meanwhile, is at between ~1,625 and ~1,655, which are the -1SD and -2SD levels.

Shifting to an aggressive mode. The FBMKLCI has recorded a decent total return of 1.7% MoM in February, extending the first two-month gain to 3.5%, mainly driven by GENTING (+12.8%), MAYBANK (+4.6%) and IOICORP (+6.1%). Small caps, meanwhile, were traded actively and outperformed the benchmark index by a wide range with a MoM change of +2.2% and +6.2% for FBMSC and FBMACE, respectively. Thus, this suggested that market sentiment has improved and investors have started to switch from defensive counters. This view is also reinforced by the declining IGBREIT and SUNREIT as both of them declined by 5.1% and 4.5% MoM, respectively. On Wall Street, US stocks continued to trade at record highs in February as Trump’s surprise November election continued to spur confidence that the economy will continue to strengthen with a probusiness president in the White House. Indeed, optimism on Wall Street has led the DJIA, for the first time ever, to cross and closed above the 21,000 milestone last Wednesday after President Donald Trump’s first address to a joint session of Congress in which he outlined his ways to ‘make America great again’.

Better portfolio performance as well. Most of our portfolios performed well in February, in tandem with the overall positive market sentiment, beating the barometer index. The GROWTH Portfolio continued to be the top gainer; extending its YTD (since 16-Jan.) gain to 9.2% after recording a strong 12.3% MoM gain in February as a result of sturdy performance of PMETAL (+34%), and PESTECH (+8%). The former was mainly driven by the bullish aluminium price (as a result of production cut in China) as well as improving production efficiency while the latter continued to be supported by its explosive earnings growth story. Likewise, the THEMATIC portfolio also performed handsomely and recorded 8.6% MoM gain (thanks to the strong performance of PMETAL and AIRASIA (+14%)), widening its YTD gain to 6.8%. On the flip side, the DIVIDEND YIELD portfolio has underperformed the benchmark index, no thanks to the weak performance of PROTASCO (-18%) post reporting disappointing set of FY16 result. The dip, however, was partially cushioned by the gains from AEONCR (3.6%) and PWROOT (3.8%), narrowing its YTD loss to 1.2%. On the other hand, the two additional model portfolios based on Modern Portfolio Theory continued to show two distinctive performances whereby MAXIMUM RETURN Portfolio posted a strong monthly return of 5.6% whereas MINIMUM RISK Portfolio reported a 1.9% decline in portfolio value, leading their YTD performance to 15.6% and -2.1%, respectively.

Two distinct performances for the MPT portfolios. The performances of the two MPT portfolios continued to show two distinctive results where the MAXIMUM RETURN Portfolio reported superb total monthly returns of 5.6%, thanks to the strong performance of PMETAL (+19% MoM). The MINIMUM RISK portfolio, meanwhile, suffered a mild -1.8% loss as a result of weak KLCC (-1.1% MoM), PRTASCO (-14.4% MoM), TAANN (-5.0% MoM) and PWROOT (-5.0%) performance, which accounted for a combination of 57% weighting in the portfolio. On YTD basis, the MAXIMUM RETURN portfolio continued to soar with a handsome return of 15.6% as of the end-February while the MINIMUM RISK portfolio suffered a negative 2.1%. We believe the MAXIMUM RETURN Portfolio will continue to lead as opposed to the MINIMUN RISK Portfolio as the market is still on an uptrend. This is because the former is focused mainly on three high beta stocks whereas the latter is well spread to minimise risk exposure.

Trend is your best friend. The March’s MPT model suggested a mild change in share holdings after updating the stock performances in February 2017. The slight changes, we believe, was mainly due to the overall stable market direction which continued to suggest an upward trend. Nevertheless, despite the similar stock holdings in both portfolios, the estimated risk and return have increased mildly, suggesting that investors would be required to take more risks for higher returns. The estimated portfolio risk for MAXIMUM RETURN Portfolio in March has increased to 28.1% from 27.9% a month ago with estimated returns raised to 14.2% from 13.8% previously. Likewise, the estimated portfolio risk for MINIMUM RISK Portfolio remains unchanged at 8.8%, but with lower estimated portfolio return of 3.0% as compared to 3.6% in February

Source: Kenanga Research - 9 Mar 2017