The market is expected to continue to trade in a cautious mode over the near term while waiting for the new catalyst to emerge. Thus far, there have been no major surprises from the 2QCY17 results season from either the local or US corporates. Besides, we also expect Bank Negara Malaysia and the US FOMC to keep their respective OPR and Federal Fund Rate at 3.00% and 1.00-1.25% for the remaining months and thus suggesting a stable MYR outlook ahead. All in, our guarded view remains and we continue to advocate investors to adopt a Buy on Weakness strategy on laggard and defensive stocks when the key index dips below 1,750/20. Technically speaking, the underlying market is set to remain upside-bias (after the breakout above the crucial 1,771 resistance which also lifted the MACD back above its Zero line) with key immediate overhead resistance/support set at 1,789/1,771. Meanwhile, our OR tracker portfolio is outperforming the broader market with total returns of 0.99% in July vs. FBMKLCI’s -0.19%. The average returns between realised OR portfolio and unrealised OR tracker since inception of 29.5% still fared better than the FBMKLCI’s total return of 24.9% for the same period.

A trading month. In the absence of major key catalyst, the local market sentiment continued to stay cautious in July and pulled down the benchmarked/FBMSC Indices by 0.21%/0.97% MoM, respectively. Despite the moderate broad market performance which was well within our expectation, we have leveraged on the softer sentiment and issued a total of three new trading idea pieces with one company update note last month. SUPERLON (FV: RM2.50) was the star performer and gained 17.9% along with FRONTKEN (FV: RM0.43), which climbed 2.7% since being recommended. On the flip side, our Trading Buy calls on ATLAN (FV: RM5.60) and AZRB (FV: RM1.35) did not go well as both companies’ share prices continued to come under pressure in July and weakened by 3.5%/8.7%, respectively, in line with the weak trading sentiment in the overall broader market. Having said that, we are still confident on both companies in view of their attractive valuations and potential earnings turn-around story.

Mixed bag result so far; momentum slowing. The local market recorded its third MoM decline for the year in July with FBMKLCI declining 3.64pts or -0.21% MoM to settle at 1,763.67 as the softer performance of telco stocks was not offset by the better gaming counters’ performance. Axiata, Digi and TM were the key index laggards last month, which cumulatively dampened the benchmark index by 7.35 pts, no thanks to the renewal capital gain tax dispute in Nepal (Axiata), uninspiring 2Q17 result performance ( by Digi) and higher profit-taking activities in TM. On the other hand, the initial findings from the current 2QCY17 result was a mixed bag, of which HUAYANG and LCTITAN’s results came in far below expectation. Besides, the high profile multibillion-dollar Bandar Malaysia property development project saw no shortage of interest in the bidding process (which concluded in July), with a stiff contest shaping up between a clutch of seven China’s state-owned entities and two Japanese giants (Daiwa House Industry Group and Mitsui Fudosan). The bids received feature development plans valued at between USD7b and USD10.5b, according to Malaysian government officials, and the successful bidder would have a better chance of securing a major role in the KL-Singapore high-speed rail project. Foreign funds flow-wise; while foreigners continued to be upbeat on Malaysia market for the 7th consecutive month with net inflows totalling RM421m (-45% MoM), the momentum has somehow softened, as witnessed by the 4th consecutive MoM decrease. On Wall-Street, stocks finished higher for the 4th consecutive month with DJIA (+2.13% MoM to 21,891.12) continuing to make a record high, fuelled by optimism that growth in both the economy and corporate earnings will continue to gain positive momentum.

Still outperforming. With the additional three stocks recommended in July, our OR tracker list with Trading Buy recommendation is now increased to 28 stocks. The average total return for the 99 stocks under the realised portfolio stood at 28%. Together with the 28 stocks in the unrealised portfolio, the average total return for the tracker stocks (since inception in Aug 2012) stood at 29.5% as of end-July, which is higher than the total returns of 24.9% from the FBMKLCI for the same period. VITROX (+188%) remains the top performer under our OR unrealised tracker list, thanks to the strong tech sector rally, followed by ELSOFT (+135%) and GKENT (+133%) while the top three losers, on the other hand, are REACH (-41%), BFOOD (-24%) and PROTASCO (-17%). Meanwhile, PESTECH (+226%), VS (+205%), CAB (+167%) are the top three performers under the realised stocks while K1 (-60%), SAPRES (-36%) and HOHUP (-33%) are the top three losers.

Source: Kenanga Research - 10 Aug 2017