Kenanga Research - On our Portfolio - Parliament dissolution around the corner?

The local market traded in a range-bound mode last week while waiting for further developments relating to the upcoming 13th General Election. All of our three model portfolios performed in tandem with the overall broad market last week and recorded a mild change of between -0.6% to +0.8% WoW. On a YTD total return basis, all our three model portfolios have recorded positive returns as compared to the -3.43% return of the FBMKLCI, beating the benchmark index by 474-627 bps. The THEMATIC portfolio continued to remain the top gainer (+2.84%) followed by the GROWTH (+1.74%) and the DIVIDEND (+1.31%) yield portfolio. This week, we expect the market to consolidate but with a downward bias. Based on our technical reading, we believe that the market could otentially slide further towards the 1,600 psychological level should it fail to hold the immediate support level of 1,620. On top of that, there is a strong market rumour that the parliament may likely be dissolved in this week. Should this news materialise, the market could potentially trade lower by 1%-3% during the election campaign period based on our study of the past three general elections.

A range-bound mode. Last week, the local market traded in a range-bound mode at between +0.4% to -0.8% while waiting for further developments relating to the upcoming 13th General Election. For the week under review, the FBMKLCI index was lower by 0.05% or 0.75 pts to settle at 1,626.89. The main index movers were SIME (+RM0.19); MAYBANK (+RM0.14) and CIMB (+RM0.10). Buying interests in SIME re-emerged after the previous week selldown by foreigners, which led the share price to close by 2.1% WoW higher to RM9.19. The banking sector, meanwhile, was cheered by the Bank Negara Malaysia statement that the authority was still comfortable with the current bank lending to households, which suggested that the possibility of the central bank introducing further tightening measures would continue to remains low for now. On the US market, the DOW closed relatively flat at 14,512.03 amid concerns on the Europe debt issue, which overshadowed the better-than-estimated economic data that came out.

THEMATIC Portfolio remains the top gainer. All of our three model portfolios were performed in tandem with the overall broad market and recorded a mildly change in the overall return last week. The THEMATIC Portfolio reported a -0.56% loss WoW but with an unrealised profit of 2,366 or +2.84% on YTD basis. The lower WoW performance was mainly led by PUNCAK (-2.6% to RM1.48) and MPHB (-2.9% to RM3.61). The GROWTH Portfolio, meanwhile, has recorded a positive gain of +0.77% WoW, bringing the YTD total return to RM1,149 or +1.74%. The DIVIDEND Portfolio’s fund value rose by 0.1% or RM66 WoW, aiding the YTD total return advance to 1.31% or RM872. Note that, for a conservative purpose, we have yet to fully investing the allocated amount of RM100k each in our model portfolios at this juncture due to the uncertainly before the general election. Our current invested ratios for the THEMATIC, GROWTH and DIVIDEND portfolios are 83.3%; 66.2%; and 66.4%, respectively.

Parliament likely to be dissolved in this week? We believe the market could become more volatile should the Parliament be dissolved during the week as per market expectations. Based on our study of the past three general elections, the FBMKLCI index tends to fall by as much as an average of -2.3% during the election campaign period. Out of which, the 12th GE experienced the worst performance of the three where the benchmark index fell by as much as -2.9% during the election campaign period. Thus, in view of the high uncertainty in the upcoming GE, we do not discount that history may potentially repeat itself here.

Expecting the market to consolidate but with a downward bias this week. We believe the benchmark index will likely to trade in a consolidation mode but with a downward bias this week judging from the mixed technical indicators. The 1,620 level should present some support for now. Should this level be taken out, the FBMKLCI could potentially slide further towards the 1,600 psychological level. We believe investors will be unwilling to take up major positions in the stock market this week given the slew of speculations surrounding the parliament dissolution date and general elections. Hence, gains could be capped and profit taking could be potentially widespread, especially on the recent gainers such as Johor property related companies like UEMLAND, TEBRAU, EKOVEST, etc.

Source: Kenanga