The impact from geopolitical tensions appears to be subsiding as regional markets begin to trend upwards along with firmer economic growth prospects. Prospects for the Malaysian market could be promising in the near term following the stabilising of MYR/USD rate and improved commodity prices. Seasonally speaking, 4QCY trading sentiment tends to be more upbeat than other quarters with bias to the upside. On the technical side, key resistance levels for the benchmark index are at 1,765/1,783 with immediate support levels nearby at 1,729/1,713. The current trading range of between 1,750/1,720 may be ideal to our Buy-OnWeakness strategy, capped by low technical downside, with further upside bias affirmed by our expectations of better corporate earnings in the coming quarters on a more favourable macroeconomic outlook. Our THEMATIC, GROWTH and MPT MAXIMUM RETURN Portfolios recorded unprecedented growth in the month of October, thanks to the continuing surge of PMETAL (+17.51% MoM).

Greener fields on the horizon. Despite the unyielding exchange between the US and North Korea leaders, the global economy has continued to demonstrate unfettered growth. Further, most regional indices have recovered, following the sharp decline since September when tensions were at its peak. On macro aspects, speculation on the imminent US Fed Rate hikes by year-end may result in foreign investors less inclined to commit to US equities. On the local front, easing USD/MYR rates and improving commodities outlook may provide reasons for investors to accumulate stocks that were adversely affected by the previous unfavourable conditions. We maintain our Buy-on-Weakness strategy at current trading levels ranges at 1,750/20 (implying -1SD/-2SD levels) while consensus index targets is ~1,870. Our year-end index target is unchanged at 1,830.

Fairly non-impactful Budget 2018. The local market dipped by 7.66pts or 0.44%, closing at 1747.92 in October. Despite a “rakyat-centric” 2018 Budget being delivered at month-end, the lukewarm reaction suggested that investors may be more demanding of stimuli to be convinced of solid economic growth. Net foreign outflows of RM226.8m in October marks the third consecutive month of selling. Tepid interest could be drawn from a more robust trading scene, particularly in the US exchanges. On domestic index components, October’s performance was dragged by MAYBANK (-2.9%), GENTING (-5.2%) and GENM (- 6.5%). This was softened by TENAGA (+4.8%) following strong reported earnings at month-end. Over at Wall Street, the Dow once more peaked at new record highs at 23,377.24 after gaining 972.15pts or 4.34%. That was after strong report cards by the tech giants (i.e. Amazon, Alphabet, Microsoft, Apple, and Intel) and better-than-expected third quarter GDP.

PMETAL again the star performer. The THEMATIC and GROWTH Portfolios continue to register commendable growth rates thanks to our allocated portion of PMETAL, which added 35.68% MoM. The THEMATIC Portfolio netted a 6.50% MoM gain after being offset by OLDTOWN’s flattish 0.37% MoM gain and negative returns from other holdings. At the meantime, the GROWTH Portfolio grew 9.22% MoM after a strong 6.29% rise from PESTECH was mitigated by other loss-making stocks. The DIVIDEND Portfolio saw a 2.48% MoM gain as the strong recovery of AEONCR (+10.49%) was softened by its lacklustre movements of its portfolio counterparts. On YTD basis, the THEMATIC and GROWTH Portfolio returns of 33.96% and 29.79%, respectively, persisted to outpace the 9.36% returns in the FBMKLCI. The DIVIDEND Portfolio continued to fall short at 3.78% YTD gains, post-realised losses of PRTASCO in Aug 2017. On the other hand, the MAXIMUM RETURN Portfolio under the Modern Portfolio Theory posted 4.46% monthly gain and extended its YTD total return to 41.73% while the MINIMUM RISK Portfolio only registered a slight gain of 0.23%, nudging its YTD returns slightly to 1.20%.

Wider spread in MPT Portfolio yields. Both MPT portfolios in October recorded positive performances, with the MAXIMUM RETURN portfolio’s total return once again beating the MINIMUM RISK portfolio’s flattish results. Thanks again to PMETAL’s continuous price appreciation (+17.51%) the MAXIMUM RETURN portfolio gained 4.46% during the month. Contribution from PESTECH (+6.41%) was offset by losses from AIRASIA (-3.19%) and SLP (-1.58%). The MINIMUM RISK portfolio, on the other hand, bore the brunt from its heavy exposure toward our local index’s ETF (-1.91%) but was supported by the favourable returns in PESTECH and AEONCR (+9.90%). Volatility in the MAXIMUM RETURN portfolio is expected to be persistently higher than the MINIMUM RISK portfolio with stronger expected returns given the continued emphasis on high beta stocks.

Small tweaks to November’s stock allocation. After updating the stock performances in October, the MAXIMUM RETURN portfolio for November remains unchanged with a slightly higher estimated portfolio risk/return of 32.4%/12.3% (from 32.3%/12.3%, previously) as trading sentiment peaked. On the contrary, minor changes were made to our stock allocation for the MINIMUM RISK portfolio, as we reduce our allocation on OCK, PWROOT, SLP and TAANN for a bigger allocation for PESTECH and AEONCR. This action revises the portfolio’s estimated portfolio risk/return to 8.5%/2.7% (from 8.5%/2.8%, previously) which could also indicate preference towards more fundamentally secure stocks in the near term.

Source: Kenanga Research - 9 Nov 2017