With the FBMKLCI looking toppish technically and coupled with the continued lack of fresh catalysts to propel the market higher, the risk of a short-term correction is heightening. In addition, net foreign buying momentum is also tapering. As such, a “Buy on Weakness” strategy, especially laggard stocks, is preferred at 1,705/1,670. For now, the key index is supported at 1,740/1,727 levels while resistant levels are capped at 1,750/1,760. Portfolio-performance-wise, all three model portfolios outperformed the overall market with THEMATIC Portfolio the top gainer in March. Meanwhile, the performance of MAXIMUM RETURN Portfolio under the MPT model continued to run ahead of MINIMUM RISK Portfolio.

Time to take a breadther? While the market has continued to be upbeat since the beginning of the year, with little change in fundamentals and coupled with the lack of fresh catalysts, risk of a short-term correction is heightening. In addition, the momentum of foreign investors’ buying is tapering from the peak of RM816m net inflow on 17th of March, the biggest daily net inflow since May 2013, to RM137m last Friday. Technically, although the uptrend remains intact, FBMKLCI looks toppish with key support at 1,740/1,727 while resistant levels are seen at 1,750/1,760. As such, we prefer “back to basic” as well as laggard play strategies in our stock/sector selections and to accumulate as and when the index pulls back to 1,705/1,670 levels with our higher end-2017 Index Target at 1,775 from 1,750. In the coming weeks, all eyes will be set upon the upcoming, corporate earnings season in the US for more clues over market direction. We should be able to see the early batch of 1QCY17 earnings release for Malaysian companies at the end of this month.

Market still upbeat last month. The local market continued to surge higher last month with the benchmark index staying above the 1,700-level throughout the month of March except for the first day of the month. This was largely due to the buoyant global equity market, especially the US market, as key indexes were treading new highs. In addition, the better-thanexpected 4QCY16 reporting season which concluded in end-February also helped to improve buying sentiment further last month. Although crude oil prices were seesawing, it managed to hold above USD50/bbl which coupled with stabilising MYR against the greenback in 4.40 levels kept investors’ sentiment buoyant. Buying interest was also seen in small to mid-cap stocks. Meanwhile, foreigners remained as net buyers for the 3rd consecutive month with net inflow surging 357% MoM to RM4.37b in March. Buying was centred in heavyweights such as CIMB (+14.52%), AXIATA (+14.22%) and MAYBANK (+3.72%) which led the FBMKLCI index to close 46.32pts or 2.73% higher to settle the month of March at 1,740.09. On Wall Street, US stocks generally rose higher with the Dow breaking the 21,000-mark for the first time in early March after a bullish speech by President Trump to the Congress. Nonetheless, the key index did not manage to hold the ground and fell back to 20,000-level as the Republicans withdrawn their healthcare overhaul bill towards last month. Having said that, the US market has remained buoyant.

Good portfolio performance. In tandem with overall positive market sentiment, our portfolios performed fairly well in March. In fact, all our portfolios outperformed the barometer index (+3.15%) with THEMATIC Portfolio (+9.21%) being the monthly top gainer, followed by GROWTH (+7.19%) and DIVIDEND YIELD Portfolios (+4.67%). Most of our invested stocks posted gains except TAANN (-3.36%) in THEMATIC Portfolio and PESTECH (-4.40%) in GROWTH Portfolio. We saw impressive monthly returns from AIRASIA (+18.57%), OCK (+12.74%), SLP (+10.27%) and PMETAL (+9.19%) which partly attributed to the higher returns for both THEMATIC and GROWTH Portfolios while the rise in PWROOT (+8.17%) and the rebound in PROTASCO (+5.60%) helped to push DIVIDEND YIELD Portfolio higher. YTD, GROWTH Portfolio remained as top gainer with YTD total return of 14.91%, against the FBMKLCI’s 6.79%, followed by THEMATIC Portfolio (+14.91%) while DIVIDEND YIELD returned to profit with 2.31% YTD Total returns after a 4.67% monthly gain last month. On the other hand, the MAXIMUM RETURN Portfolio under the Modern Portfolio Theory posted 5.35% monthly gain totalling YTD total returns to 21.75% while the MINIMUM RISK Portfolio remained in the red which narrowed to -0.61% YTD total returns after a 1.56% monthly gain in March.

Two distinct performances for the MPT portfolios. The performance of the two MPT portfolios continued to show two distinctive results where the MAXIMUM RETURN Portfolio reported superb total monthly returns of 5.35%, which was higher than the benchmark index’s returns of 3.15%. This was mainly due to the fairly good price performances for all our invested stocks, namely OCK, PEMTAL and SLP, while the MINIMUM RISK Portfolio posted only total monthly returns of 1.56% which were due to one of the three top key holding stocks, TAANN posting a total monthly loss of 3.87% that pulled down overall performance. On YTD basis, the MAXIMUM RETURN Portfolio continued to register impressive returns of 21.75% on a fully invested basis while the MINIMUM RISK Portfolio’s losses had narrowed to 0.61% after a 1.56% monthly gain last month. Going forth, we believe the MAXIMUM RETURN Portfolio will continue to lead as opposed to the MINIMUN RISK Portfolio so long as 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.

OCK is the key changes in MPT selection. After updating the stock performances in March, the MPT model suggested no changes in invested stock selection except OCK, which has been removed from the April MPT for MAXIMUM RETURN Portfolio. OCK is replaced by AIRASIA with 10% shareholding where the other three stock holdings in PESTECH, PMETAL and SLP remained unchanged at 30% each. On the other hand, there is also limited shareholding changes in the MINIMUM RISK Portfolio in April from last month. Meanwhile, the estimated portfolio risk for MAXIMUM RETURN Portfolio rose to 29.3% from 28.1% and estimated portfolio return raised to 17.3% from 14.2% previously while the estimated portfolio risk for MINIMUM RISK Portfolio was reduced slightly to 8.7% from 8.8% but estimated portfolio return increased to 3.5% from 3.0% previously.

Source: Kenanga Research - 12 Apr 2017