InsiderAsia's model portfolio — Week 368

THE local stock market continued to chalk up gains last week, but it was a patchy week.

Spillover positive sentiment from the previous week and the FBM KLCI's ability to cross the important 1,300-point mark buoyed interest in the earlier part of last week, but heavy profit-taking later set in.

For the week, the FBM KLCI rose a total of 11.4 points or 0.9% to end at 1,311.2 points. This follows the previous week's 29-point gain.

The FBM KLCI had hit a new two-year closing high of 1,328.2 points last Wednesday, with strong double-digit gains last Monday and Wednesday, before succumbing to heavy selling pressure last Thursday and Friday. Positively, the key index remains above the psychologically important 1,300-point level, which is seen as crucial to sustain domestic investor interest.

Earlier in the week, global bourses also reached their highest levels in six weeks, with investors buoyed by the better-than-expected US jobs report for February 2010. Despite severe winter weather conditions, US employers cut a fewer-than-expected 36,000 jobs in February 2010, and the unemployment rate held steady at 9.7%.

The improvement in investor confidence follows nearly two months of lacklustre global equity market conditions, which saw investors see-sawing between investor optimism and pessimism almost on a daily basis. Recent US economic data have turned slightly better than expected and the debt problems in Greece also appear under control.

However, investor sentiment in Malaysia and the region took a turn for the worse last Thursday and Friday, following the release of stronger-than- expected inflation data from China.

Chinese consumer prices rose 2.7% in February 2010 from a year earlier, and above the 2.4% rate expected by economists. This renewed fears over potential monetary-tightening measures.

Fears over a tightening of China's monetary policies — and the impact on asset prices and growth — have long dogged investors. And they will likely continue to do so in the near future. China's rapid growth is being fuelled by rapid bank lending and government spending, which have filtered into higher equities, commodities and property prices.

The China concerns tend to periodically give global investors the jitters, until something else comes along to overshadow them, such as problems in Greece or economic data from the US. In the absence of strong positive leads — and with global stock prices recently reaching six-week highs, these concerns are likely used as a catalyst to trigger profit-taking activities.

On the local front, Malaysia's economic recovery remained on track with industrial production index in January surging 12.7% year-on-year (y-o-y) and 2.9% month-on-month (m-o-m), led by the manufacturing sector. The recently ended earnings season and strengthening ringgit also provided some positive catalysts.

Looking further out, the next leads will likely come at the end of the month, when the prime minister unveils the New Economic Model (NEM) and addresses the InvestMalaysia conference, which traditionally has some market-positive initiatives.

Investors will keenly await the NEM, which follows the economic liberalisation moves announced last July. Both are expected to help reshape the country's economic policy going forward and hopefully, attract more foreign investments.

Until then, the local bourse will likely take its cue from external issues and Wall Street. With the jury still out there on the pace of the recovery ahead, investors will also continue to sift through forthcoming US economic data.

Portfolio review
Our basket of 19 stocks outperformed the benchmark index last week, rising by 1.4% compared with the FBM KLCI's 0.9% rise. Including our large cash reserves (for which no interest is imputed), the total portfolio value increased by a smaller margin of 1.1% to RM557,490.

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 RM397,490. Of this amount, RM224,946 has already been realised from earlier sales, and the rest are unrealised.

Since its inception, our model portfolio has registered a hefty return of 248.4% compared with our capital of RM160,000. By comparison, the FBM KLCI was up by 102.7% over the same period, even though it has been less representative of the broader market's performance. Plus, our portfolio holds a significant amount of non-interest yielding cash at all times for prudence's sake.

Last week, we had 11 gaining stocks and eight losing ones.

Dufu TECHNOLOGY [] Corp was the week's biggest gainer, rising 11.1% as investors started to appreciate its low peer valuations, following the release of its strong final results. Other major gainers include Ireka Corp (up 9%), HELP International Corp (up 8%) and Faber Group (up 6.3%). Losers include 3A Resources (down 5.2%) and Tanjung Offshore (down 3.6%).

We are keeping our portfolio unchanged. Our portfolio equity weighting currently stands at 79%, and we have surplus cash of RM116,995 for future investments.

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