Building materials (Underweight)
Mixed prospects
§ Despite the recent uptick in regional steel prices, we continue to advocate our bearish view on both demand and prices for steel products in the region, underpinned by:
1. Weak near-term demand prospects for steel products in China, which would continue to have spillover effects on steel demand and prices in the region;
2. Still-high steel inventory in China, indicating that stock replenishing activities will remain subdued; and
3. Last but not least, the recent increase in iron ore prices (arising from weather constraint) that may further cap margins of steel producers.
§ Relative to the steel sub-sector, we are more bullish on demand prospects of the cement sub-sector, as it is the largest beneficiary from the implementation of ETP projects.
§ We are maintaining our Underweight rating on the overall building materials sector, given our less optimistic view on the steel sub-sector's near-term outlook. Between the steel and cement sub-sectors, we are of the view that cement players will likely enjoy better fundamentals.
Moderation in 4Q 2011 GDP Growth
§ Real GDP growth moderated to 5.2% yoy in 4Q (3Q: +5.8% yoy), affected mainly by slower expansion in the services and agriculture sectors. On the demand side, shrinking net exports and more moderate consumer spending contributed to the slower GDP expansion.
§ Growth in the services sector eased to 6.4% yoy (3Q: +7.0% yoy) affected mainly by slowdown in real estate & business activities (+2.3% yoy; +6.8% yoy), in line the less buoyant property and stock market activities in 4Q.
§ Construction growth more than doubled to 6.4% yoy (3Q: +3.0%) led mainly by residential and civil engineering.
§ Domestic demand expanded at a faster pace of 10.5% yoy (3Q: +9.0%) with stronger expansion in public consumption and gross fixed capital formation.
§ We retain our GDP growth forecast of 4.5% for 2012, with softer manufacturing growth cushioned by stronger construction activities and resilient consumer spending.
§ We reiterate our view that BNM will hold the OPR steady at 3.00% until end-2012 on resilient growth outlook with sticky inflation.
KLCI: Crucial 1550 support
§ Following overnight Dow's fall, the KLCI is likely to continue its consolidation for a while. Immediate supports are 7-d SMA (1558), followed by 10-d SMA (1548). A breakdown below 10-d SMA would likely confirm a reversal and send the index back towards 1534 (mid Bollinger band) and 1527 (30-d SMA).
Dow: Uptrend is losing steam
§ Technical indicators are weakening amid a rising wedge pattern.
§ The rising wedge pattern is characterized higher highs and higher lows with a contracting range, signalling an uptrend could end and a reversal pattern is in the pipeline.
§ A breakdown below uptrend line support near 30-d SMA (12658) will spur more downside towards lower Bollinger band (12582) and 50-d SMA (12434). More solid support is near 100-d SMA at 12015.
§ Resistance levels are situated at 10-d SMA (12840), 12929 and 13k psychological barrier.
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