InsiderAsia's model portfolio — Week 369

THE local stock market closed lower last week, after several weeks of gains. Sentiment turned more cautious in the wake of fears over further monetary tightening in China and the lack of fresh domestic leads. The FBM KLCI also fell below the psychologically important 1,300-point level, leading more domestic investors to sit on the sidelines.

For the week, the FBM KLCI lost a total of 14.6 points or 1.11%, ending at 1,296.6 points.

The week got off to a poor start. Last Monday, share prices fell for the third consecutive day, and closed below the 1,300-point mark, less than a week after hitting two-year highs. The losses continued throughout the week, with the index ending in the red daily except for Wednesday.

Investors continued to worry over further monetary-tightening measures in China, following the recent stronger-than-expected inflation data. Chinese consumer prices rose 2.7% in February from a year earlier, triggering fears the government would be more aggressive in reining in credit and raise interest rates.

Investor caution was also heightened due to the large number of US economic data due last week, including the all-important Federal Open Market Committee (FOMC) meeting. Most of the economic data were actually well received by Wall Street. This led to almost daily gains for the Dow Jones Industrial Average Index, which hit two-month highs.

Following the FOMC meeting, the Federal Reserve pledged to hold interest rates low, keeping it near zero to help the nascent economic recovery. The central bank also gave a slightly more optimistic outlook on the US economy, saying businesses are making more investments and the unemployment situation was stabilising.

We expect US interest rates to stay low for quite a while as US economic growth will stay relatively modest. The strength of consumer spending, which accounts for 70% of the economy, will continue to be weighed down by high unemployment and the ongoing debt de-leveraging.

Among the US data released last week, investors welcomed the larger-than-expected 0.6% fall in producer prices in February 2010, the largest decline since July 2009. Stripping out energy and food costs, core producer prices rose by 0.1%. This snapped a four-month increase and eased inflationary — and interest rate hike — concerns, at least for now.

Following the lack of upward pressure for US producer prices, the picture was similar for consumer prices. The Consumer Price Index (CPI) was unchanged in February after rising 0.2% the month before, and lower than expectations for a 0.1% rise. Core CPI, excluding volatile food and energy prices, rose 0.1% in February after falling 0.1% in January.

While inflation is tame, growth prospects also look rather slow. The US Conference Board's index of leading economic indicators rose 0.1% in February, as expected, after rising 0.3% in the previous month. This was the smallest gain in 11 months. The leading indicators' index forecasts economic activity in the next three-six months based on a variety of economic data.

On the local front, there were few fresh corporate developments except for the proposed privatisation of pay-TV operator Astro at RM4.30 per share. This triggered a rally in Astro's shares last Thursday, as well as of other companies controlled by tycoon T Ananda Krishnan.

With few fresh domestic leads to drive interest, investors are eagerly awaiting the New Economic Model to be unveiled at the end of this month.

Portfolio review
Our basket of 19 stocks outperformed the benchmark index last week, declining by a smaller margin of 0.39% compared with the FBM KLCI's 1.11% fall. Including our large cash reserves (for which no interest is imputed), the total portfolio value declined by a smaller margin of 0.31% to RM555,755.

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 RM395,755. 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 247.3% compared with our capital of RM160,000. By comparison, the FBM KLCI was up by 100.5% 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 seven gaining stocks, nine losing ones while three stocks were unchanged.

Notion VTec, Dijaya Corp, MyEG Services and Tanjong plc led the weekly gainers, up 3.2%, 2.7%, 2.4% and 1.5%, respectively. The week's major losers were led by Ireka, Green Packet and Pantech, down 8.3%, 3.3% and 3.2%, respectively.

We are keeping our portfolio unchanged. Our portfolio equity weighting currently stands at 79%, which we are comfortable with.

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.