The local market finally pulled back last month after a strong run which started last December. This was not unexpected given the toppish technical readings. The persistent geopolitical tension between US and North Korea coupled with the anxiety over upcoming GE14 did not help sentiment much either. In addition, crude oil price was also off its recent high of USD70/bbl to current level of USD65/bbl. As such, we advocate a “Sell on Strength” strategy in the range of 1,855-1,925 which is deemed as a low-risk Selling/Profit- Taking zone while level of <1,800 should act as low risk buying levels. As sentiment is not in favour to the mid-to-small-cap stocks, we believe it is time to switch focus to the big caps especially those with resilient earnings play. Meanwhile, our OR tracker portfolio underperformed the benchmark index with average monthly return of -2.07% in February against FBMKLCI’s - 0.54%. On the other hand, average total return between realised OR portfolio and unrealised OR tracker since inception of 27.73% is trailing behind the index for the 3rd consecutive month with barometer index registering total returns of 34.20% for the same period.
A volatile month. We did not issue any On Our Radar (OR) reports in the shortened working month of February given the busy earnings reporting season, CNY festive holidays and the market volatility going against the small caps which saw FBMSC falling to its 52-week low. In the recent results roundup strategy piece “Feeling Down? Not Really?”, we highlighted that based on our Market Sentiment Study, mid-and-smallcap stocks have shown signs of cooling off as per our Valuation Gaps Study with FBMKLCI vs. FBM70 and FBMSC, which could be an early sign of market topping. In addition, the Accumulated Volume-Price Indicators for all the three indices have crossed below their respective 30-day SMAs. These technical pictures are signalling reversal in Buying Momentum. Most importantly, the FBMKLCI was traded at a discount of 3.8%, as of end-Feb, against the consensus index target of 1,930 which surpassed its 3-year mean level of 4.4% discount. As such, we reckon that risk-reward consideration does not favour buyers at this juncture. Hence, we advocate a “Sell on Strength” strategy in the range of 1,855-1,925 which is deemed as a low-risk Selling/Profit-Taking zone. On the flipside, level of <1,800 should act as low risk buying levels.
Market closed lower especially for small caps. After a good year-end rally which extended to January, mood of the local market swung negatively in February over geopolitical issue, i.e. US and North Korea tension while crude oil price also retraced from a recent high of USD70/bbl level. In addition, anxiety over upcoming GE14 led investors to profit take which also dragged the market lower. In fact, foreign investors also turned net sellers last month for the first time after two months of net buying with total net outflow of RM1.12b from RM3.41b net inflow in January. However, YTD flow is still positive at RM2.29b. At the end of February, the FBMKLCI settled 12.38pts or 0.66% lower to 1,856.20, which was largely led by GENTING (-8.10%), AXIATA (- 5.10%) and AMBANK (-14.11%). However, investors turned to bigger banking stocks such as PBBANK (+4.64%), MAYBANK (+3.56%) and HLBANK (+7.63%) while NESTLE (+13.06%) continued to see strong buying interest as investors looked for resilient earnings stocks. On the other hand, our OR Tracker Portfolio posted an average monthly decline of 2.07% which underperformed the benchmark index’s total returns of -0.55% but similar to the FBMSC’s -2.03%. The overall tracker portfolio performance was negatively impacted by the decline in SALUTE (-22.63%), AZRB (-19.07%) and SASBADI (-17.80%) while the gainers were GKENT (+13.35%). SCICOM (+8.79%) and MYEG (+7.60%).
Tracker behind the index for the 3rd consecutive months. With no changes to our OR tracker list, the Trading Buy list remained unchanged at 31 stocks. Together with 104 stocks in the realised portfolio, the average total return for the tracker stocks (+27.44%) and realised portfolio (+27.84%) since inception in August 2012 is 27.73%, which underperformed the FBMKLCI’s 34.20% for the same period. VITROX (+301.67%) remains as the top performer under our OR unrealised tracker list followed by GKENT (+257.46%) and ELSOFT (+114.74%) while REACH (-49.30%), SALUTE (-35.71%) and SASBADI (- 32.11%) are the top three losers. On the other hand, VS (306.02%), PESTECH (+225.92%) and CAB (+166.74%) remain as the top three realised gainers. On the flip side, EATECH (-68.29%) and K1 (-60.39%) and KNM (-45.45%) remain as the top three losers under the realised portfolio.
Source: Kenanga Research - 16 Mar 2018