InsiderAsia's Model Portfolio — Week 357

TRADING on Bursa Malaysia was quiet in the holiday-shortened week as most investors opted to stay on the sidelines, or were already on holiday for the extended Christmas-New Year break.

Trading volume fell to below 500 million shares per day on average, slipping to just 384 million shares on Christmas eve. We expect trading to remain quiet in the coming week.

For the week, FBM KLCI traded roughly flat, declining 3.1 points or 0.2% to close at 1,263.9 points. Notwithstanding that, there were some interesting and positive developments on the domestic corporate front, especially in the banking and property sectors.

Confirming recent market speculation, the major shareholders of EON Capital and Hong Leong Bank announced receiving regulatory permission to begin merger talks. A merger between the two could create the country's fourth largest banking group, and has buoyed the share prices of EON Capital and Hong Leong Bank's parent, Hong Leong Financial Group.

Last Thursday, the government relaxed the real property gains tax. The 5% tax will now apply only to PROPERTIES [] held for less than five years, rather than across the board as was earlier announced in the 2010 Budget.

The move is welcomed given that there was no major property bubble in Malaysia since the end of the 1997-98 financial crisis. As such, property prices were generally resilient during the latest crisis. The risk of a new asset bubble is also low given the low levels of foreign participation in the local property sector, unlike in Singapore and Hong Kong.

After earlier rattles caused by a number of problems ranging from interest rates to sovereign debt problems in Dubai and Greece, last week was relatively calm on the external and economic fronts. Japan, the world's second largest economy, reported the smallest drop in exports in 14 months. November's exports fell by only 6.2% year-on-year, helped by robust Asian demand and, to a certain extent, a low base effect. Recall that exports slumped as much as 26.8% in November 2008. In the US, data released was more patchy. 3Q09 gross domestic product grew just 2.2% in the final revision, after having been previously revised down to 2.8% from the first estimate of 3.5%.

Part of the downward revision was attributed to higher than expected inventory liquidation. That led analysts to forecast stronger growth in 4Q09 as businesses replenish their depleted stock levels. Nevertheless, most remain ambivalent on the growth outlook for 2010, especially in 2H10 and into 2011 after most stimulus measures come to an end. On the housing front, sales of existing US homes rose 7.4% in November, the fastest pace since February 2007. However, a day later on Wednesday, data released showed sales of new homes plunged 11.3% in November to their lowest level since March 2009.

The drop was due to the extension of tax credits which gave potential home buyers more time, after being boosted by the earlier November 2009 expiry date. The government's tax credit programme has since been extended to April 2010. This underscored how reliant Americans have been on government stimulus programmes, which have largely driven the recovery.

In other data, US personal spending and income both rose in November, but by a lower than expected rate. Personal incomes rose 0.4%, the fastest in four months, helped by higher wages, while spending rose 0.5%.

With concerns over sovereign debts easing, the US dollar — which had rallied on "flight to safety" demand by investors — gave back some of its recent gains against the euro later in the week. This led to a rebound in commodity prices, especially gold and crude oil.

Portfolio review Our basket of 18 stocks fared very well last week, gaining 0.64% compared to the FBM KLCI's 0.24% decline. Including our large cash reserves (for which no interest is imputed), the total portfolio value increased by a smaller of 0.48% to RM512,615.

Our model portfolio's total value and returns represent a significant achievement compared with our initial capital of just RM160,000. We started the model portfolio on March 3, 2003.

Our total profits are very substantial at RM352,615. Of this amount, RM223,866 has already been realised from earlier sales.

Our model portfolio registered a hefty return of 220.4% compared with our capital of RM160,000. By comparison, the FBM KLCI was up by 95.4% over the same period, even though it has been less representative of the broader market's performance.

Last week, we had 10 gaining stocks, seven losing ones while one (Pantech) was unchanged.

The major gainers for the week were 3A Resources (up 8.4%), Dufu (up 4.9%). Dijaya (up 3.3%) and DiGi (up 2.3%). Losing stocks were led by Muhibbah (down 3.1%) and Selangor Properties (down 2.2%).

We are keeping our portfolio unchanged.

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.