Stocks on the local bourse traded broadly higher last week in the absence of major market moving developments. Gains in the US and regional markets also helped boost sentiment.

The FBM KLCI managed to close in positive territory for the first four trading days of the last week before succumbing to mild profit taking last Friday. In total, the benchmark index added nine points to finish at 1,523.1.

Trading volume too improved. As with the previous few weeks, much of investor interest was focused on lower-liner stocks. The daily trading volume averaged at roughly 1.74 billion shares, up from the daily average 1.6 billion shares in the immediate preceding week.

Sentiment will probably remain firm, barring any unexpected negative developments in the global financial market. However, activities on the local bourse in the current week may slow, especially towards the end of the week. Bursa Malaysia will be closed for Chinese New Year next Monday and Tuesday and we expect a number of market participants will take advantage of the long weekend break.

There are some corporate earnings results slated for release this week, including national utility company Tenaga Nasional Bhd and mobile operator DiGi.Com Bhd. More earnings results are expected over the next few weeks, which could provide some fresh leads for the market.

External events, meanwhile, will continue to influence trading sentiment on the local bourse.

The 4Q11 earnings reporting season in the US got off to a reasonably good start with Alcoa last week. Investors will be looking for more positive guidance from management to bolster confidence. This follows less than upbeat retail sales numbers for December last week, which could suggest that consumers are pulling back some after robust spending in the previous month. With weak income growth and high leverage, consumers could continue to cut back on consumption in 1Q12. Claims for jobless benefits too rose unexpectedly last week, after the recent slew of positive indicators for the US labour market.

In Europe, strong demand for Italian and Spanish government bonds last week alleviated concerns for the immediate term. Part of the increased European Central Bank liquidity — from cheap, longer-term loans to banks — are finding their way into the bond market, providing support for embattled eurozone countries, at least for now.

For the current week, investors will be closely monitoring developments in Greece where the government is trying to finalise negotiations with the private sector on the proposed haircut for their bond holdings. There are conflicting reports on the progress of the discussion, which is crucial to the country securing the second bailout package from the EU and the International Monetary Fund.

For the near term outlook, we expect investors will remain cautious but not pessimistic on global economic prospects. In addition to a brighter outlook for the US economy, slowing inflation in China will allow the government more room to loosen monetary policy and avoid a hard landing for the world’s second largest economy.

Portfolio review
Stocks in our model portfolio outperformed the benchmark index last week. Total market value for our basket of 18 stocks was up by 1.25% to RM406,540, compared with the KLCI’s 0.59% gain.

Eleven stocks in our portfolio closed higher while five ended in the red and two others traded unchanged. Some of our notable gainers for the week include Malaysia Steel Works (KL) Bhd (+1.8%), Al-Aqar Healthcare REIT (+5.3%), Media Chinese International Ltd (+2.7%), Sunway REIT (+3.3%) and Al-Hadharah Boustead REIT (+4.5%). At the other end, Magna Prima Bhd saw some profit taking following strong gains in the previous week (-1.7%) while Quill Capita Trust (-0.9%) and MyEG Services Bhd (-0.8%) too closed lower for the week.

Including our cash holdings, for which no interest income is imputed, our total portfolio value was up by a lesser 0.74% to RM682,265. Our total profit is substantial at RM522,265, of which RM400,948 has already been realised from previous share sales.

Last week’s gain lifted our model portfolio’s cumulative returns since inception to 326.4% on our initial capital of just RM160,000. We continue to outperform the KLCI, which was up by about 135.5% over the same period, by some distance.

As mentioned above, we are cautious of further volatility in the market but are not overly pessimistic. The global economy does appear to be in better shape than most expected during the better part of 2H11.

As such, we acquired some shares this week but are staying with companies with relatively more resilient businesses. We bought 5,000 shares in Bonia Corp Bhd and 5,000 shares in OldTown Bhd at RM2.31 and RM1.27 per share, respectively.

Bonia is among the largest retailers in the country, selling a wide range of consumer products including apparel, handbags, shoes and accessories under a stable of homegrown as well as international brand names. OldTown operates a chain of cafés, primarily in Malaysia, and manufactures instant white coffee and tea mixes for the local and export markets.

Our cash holdings remain substantial at RM257,825, accounting for 38% of our total portfolio value, following the purchases. The relatively high percentage is primarily for prudence sake.  


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.

This article appeared in The Edge Financial Daily, January 16, 2012.