The local equity market turned positive last week, after a lacklustre month in November, on expectations that BNM may raise domestic interest rates following the recent US Fed rate hike. Macro factors such as GDP growth, MYR/USD and crude oil price have been doing fairly well, which should bode well for the local market sentiment setting the stage for a year-end rally. Technically, the market broke its 3-month downtrend with key resistance at 1,765/1,800 while key supports are placed at 1,750/1,729. On the portfolio performance, GROWTH Portfolio being the top monthly gainer while THEMATIC Portfolio is the biggest gainer based on YTD total returns of 39.91%. There are mixed performances for the MTP Portfolio. After five years of maintaining this portfolio series, we have decided that this would be our last report as we are reassessing our current resource allocation for future plans. Bye for now.

Christmas cheer! After a sluggish month in November, FBMKLCI staged a sharp rally over the past week on expectations of BNM raising interest rates following the US Fed rate hike. This also followed by the strong recovery of MYR against the greenback to now below the 4.10-mark while crude oil prices also hovering the comfortable level of above USD60/bbl. This has helped to improve overall market sentiment. Having said, recent buying interests were centred on heavyweights while reaction towards lower liners remained cautious and selective. Technically, the key index broke out of its 3-month downtrend with rising trading volume thus overall technical picture has improved significantly. As such, the key resistance levels are at 1,765/1,800 while key support levels are 1,750/1,729. We maintain our end-2017 Index Target at 1,765 with “Buy on Weakness” zone of 1,745/1,705.

A lacklustre month in November. Despite stronger MYR and crude oil prices, the local market was in the red throughout the month which was in line with Asian market performance. Overall broader market sentiment was negative, which was partly due to concern of interest hike locally that could be bad for the local market as well as the disappointing reporting season. In fact, foreigners continued to be net sellers for the 4th consecutive month in November but with a marginal cumulative net outflow of RM15m as opposed to RM226m in October. This reduced YTD net inflow to RM9.37b. In fact, the MYR has improved significantly to gain by more than 8.0% to 4.10-levels per USD while crude oil prices were hovering around the USD64- USD66/bbl level last month. At the end of the month, FBMKLCI closed 30.06pts or 1.72% lower to settle at 1,717.86, which was attributable to the declines in PBBANK (-2.74%), PETGAS (-11.12%) and DIGI (-6.23%). However, its downside was mitigated by TENAGA (+3.07), SIME (+11.94%) and HAPSENG (+4.20%). On Wall Street, US stocks remained resilient with all the three key indexes namely Dow Jones, S&P 500 and Nasdaq hitting new records highs amid tax cuts and M&A deal in semiconductor players, but the Energy Sector continued to lag behind the broader market toward the end of the month ahead of OPEC meeting.

Overall good portfolio performance. Despite the overall lacklustre month for the local market, our portfolios generally managed to perform fairly well, with the exception of the DIVIDEND YIELD Portfolio which saw its monthly return declined by 2.30% vs. FBMKLCI’s -1.59%. The stronger performance came from THEMATIC and GROWTH Portfolios, as their total monthly returns rose 7.17% and 9.87% respectively, largely due to the continued surge in PMETAL, which jumped another 17.38% in November prior to the announcement of it being included in FBMKLCI’s list. YTD, THEMATIC Portfolio remained the top gainer with 39.91% YTD total returns against FBMKLCI’s +7.63%, followed by GROWTH (+36.84%) and DIVIDEND YIELD (+2.50%) portfolios. On the other hand, both MAXIMUM RETURN (+2.42%) and MINIMUM RISK Portfolios (-0.75%) under the Modern Portfolio Theory outpaced the 30-stock index on a monthly basis with their total YTD returns of +45.16% and 0.97%, respectively. As we are approaching the year end, it is time to wrap up our portfolios, which based on end-November closing prices. As we have been maintaining this product for nearly five years since Jan 2013 and the fact that we are currently reassessing our resource allocation to focus on new products, it is time for us to say goodbye.

Mixed results for the MPT Portfolios. With the sluggish performance of the overall market performance, the 12 stock selection in the MPT portfolio also affected, which saw most stock declining except four stocks, namely FBMKLCI-EA, KLCC, PESTECH and PMETAL. However, only MAXIMUM RETURN Portfolio had PMETAL in the portfolio with 30% allocation thus this MPT portfolio managed to register total returns of 2.42% in November whereas MINIMUM RISK Portfolio posted 0.75% decline in portfolio value which in line with the market performance. On the other hand, MAXIMUM RETURN Portfolio reported commendable YTD Total returns of 45.16%, which was higher than the highest returns of 39.91% for the conventional THEMATIC Portfolio. However, the MINIMUM RISK Portfolio only registered 0.44% YTD total returns for the same period against the FBMKLCI of 7.63%. This shows that volatility in the MAXIMUM RETURN portfolio was persistently higher than the MINIMUM RISK portfolio with stronger expected returns given the continued emphasis on high beta stocks.

Fine-tuning stock allocation in December. Although we have officially ended this portfolio series, we still presented the MPT stock selection for December for those interested in seeking to improve their investment returns for the month. For MAXIMUM RETURN Portfolio for December, stock selection remains the same except the change in allocation whereby allocation for PESTECH increases to 30% from 10% previously while AIRASIA reduces to 10% from 30% previously with revised estimated portfolio risk/return to 27.6%/12.8% from 32.4%/12.3% previously while risk/reward ratio to 1.08x from 1.32x previously. For MINIMUM RISK Portfolio, we reduce our allocation on OCK, SLP and PRTASCO for a bigger allocation for PESTECH, PWROOT, AEONCR and TAANN with revised estimated portfolio risk/return to 8.4%/2.7% from 8.5%/2.7% previously while risk/reward ratio to 1.38x from 1.54x previously.

Source: Kenanga Research - 18 Dec 2017