The overall market sentiment throughout the region turned cautious last Friday amid geopolitical tension between the US and North Korea. The Malaysian market was not spared, which saw the FBMKLCI falling 0.61% last Friday with market breadth remaining decidedly weak with 826 losers against just 148 gainers. This also reflects investors’ sudden rush for exits. Technically, the RSI and Stochastic have both crossed below their 50pts-mark, potentially signalling a near-term bias to the downside with immediate support of 1,764 while overhead support is 1,783. Given the geopolitical tension coupled with lack of domestic catalysts, we continue to adhere to Buy on Weakness strategy when the key index dips below 1,750/1,720 on laggards and defensive stocks. Portfolio-performance-wise, we had a mix bag of results with THEMATIC Portfolio and MPT MAXIMUM RETURN Portfolio being the only two gainers.
Still cautious. With investors hungry for catalysts to convince them to take major positions, we believe the still buoyant US market may not help much to propel the local market higher. Worst still, the sentiment has somewhat been affected badly by the shocking LCTITAN earnings report card early of this month, which may affect future IPO offerings. Having said that, we could still see thematic play such as the recent steel and aluminium plays which saw a strong rally following China cutting productions to curb pollution, which raise issue of supply shortages. On the other hand, with lack of catalyst, the on-going 2QCY17 reporting season will be the centre of focus. So far, the early batch of results releases threw no surprises except the dismal LCTITAN results. Technically, the RSI and Stochastic have both crossed below their 50pts-mark, potentially signalling a near-term bias, following last Friday’s sell down, with key immediate overhead resistance/support at 1,783/1,764. We continue to adhere to Buy on Weakness strategy when the key index dips below 1,750/20 on laggards and defensive stocks.
A slow month in July. The local market had another lacklustre month in July with the FBMKLCI consolidating for the third consecutive months as the key index dipped slightly by 3.64pts or 0.21% to settle at 1,760.03. Overall market mood was lukewarm although regional bourses were upbeat, especially the US market where three key indices hit new record highs. The less-inspiring market mood could be attributed to the renewed 1MDB issue while investors were reluctant to take positions in the traditionally weakest quarter (3Q) of the year. Meanwhile, the relisting of LCTITAN in the middle of July had failed to attract investors which forced the petrochemical company to lower down the IPO offer price per share by 19% to RM6.50. This has somewhat impacted the overall market sentiment. Meanwhile, although foreigners remained as net buyers in the local equity market with a total net inflow of RM421m in July, the monthly net inflows have been declining MoM for the past four months. Overall, AXIATA (-4.14%), DIGI (-4.00%) and TM (-4.36%) were the top market laggards in July while losses were mitigated by GENM (+9.09) and GENTING (+3.29%). On Wall Street, US markets remained buoyant, which saw all three major indices, namely Dow Jones, S&P 500 and Nasdaq hitting fresh record highs. The overall market bullish momentum was boosted by a slew of better-than-expected earnings releases while the recovery of crude oil prices also helped to drive energy stocks higher.
A mix bag of portfolio performances. In tandem with overall lacklustre market performance, our portfolios were also affected with mixed results. THEMATIC Portfolio was the only portfolio with monthly gain of 0.48%, attributed to PMETAL (+6.34%), as opposed to total returns of -0.19% for FBMKLCI while DIVIDEND YIELD Portfolio was the biggest monthly loser with portfolio value contracting 1.95% in July no thanks to PWROOT (-7.95%) as investors continued to sell down the stock after it posted disappointing FY17 results in the previous month. Meanwhile, OCK (-6.77%) faced profit-taking while selling pressure on PESTECH (-4.32%) dragged the performance of GROWTH Portfolio, which declined by 0.40%. YTD, THEMATIC remained as the top performer with YTD total return of 19.42%, against the barometer index of 8.93%, followed by GROWTH (+18.56%) and DIVIDEND YIELD Portfolio (+4.75%). On the other hand, the MAXIMUM RETURN Portfolio under the Modern Portfolio Theory posted 1.16% monthly gain increasing YTD total returns to 21.61% while the MINIMUM RISK Portfolio turned into YTD total losses of 1.19% after losing 1.41% in July.
MPT portfolios showed two distinctive performances again. The performance of the two MPT portfolios was in tandem with three other conventional portfolios with mixed results. We notice that both the higher-risk portfolios like THEMATIC and MAXIMUM RETURN Portfolios posted positive returns while the lower-risk portfolios registered losses. For the MAXIMUM RETURN Portfolio which posted 1.16% monthly gains in July, which was solely contributed by PMETAL as it had a good showing after the stock consolidated since April. However, the three other invested stocks namely PESTECH, AIRASIA (- 0.62%) and SLP (-0.41%) all reported declines in share prices. On the other hand, the MINIMUM RISK Portfolio posted monthly losses as all invested stock declined except AEONCR (+6.58%) which only had 4.6% allocation. YTD, the YTD total returns for MAXIMUM RETURN Portfolio increased to 21.61% while the YTD total returns for MINIMUM RISK Portfolio returned losses at - 1.19% as of end-July. Going forth, these two MPT portfolios will largely move along with market performance with MAXIMUM RETURN Portfolio expected to be more volatile than the MINIMUM RISK Portfolio given the former’s focus on high beta stocks whereas the latter consists of more low-beta stocks to minimise the risk exposure.
Minor change in MPT selection for August. After updating the stock performances in July, the August MPT model saw a minor change with the removing of PWROOT from MINIMUM RISK Portfolio given its volatile share price performance. In fact, the stock weighting for selected stocks in MAXIMUM RETURN Portfolio remained the same with estimated portfolio risk lowered to 32.4% from 33.0% while estimated portfolio return was reduced to 12.7% from 14.0% with risk-to-reward ratio inching up up to 1.27x from 1.17x previously. On the other hand, there is some fine-tuning in stock weighting in MINIMUM RETURN Portfolio after their stock performance in July with estimated portfolio risk dipped to 8.6% from 8.7% while estimated portfolio return narrowed slightly to 2.6% from 2.7% with risk to reward ratio expanding to 1.65x from 1.55x previously.
Source: Kenanga Research - 14 Aug 2017