InsiderAsia's model portfolio — week 372

SHARE prices on Bursa Malaysia closed relatively flat last week, with the FBM KLCI declining by two points or 0.15% to 1,334. The minor profit-taking was healthy and to be expected after the recent strong rally, which saw the index surging 39.3 points in the preceding two weeks.

Stocks traded broadly higher at the beginning of the new week. Investor confidence in the unfolding global economic recovery was bolstered by the upbeat US jobs data released the previous Friday.

The US labour department reported 162,000 job gains in March 2010. Although the number was slightly below the 190,000-200,000 net additions the market was expecting, it was nevertheless still a fairly healthy number, especially after taking into account the upward revisions made to the January-February figures. The unemployment rate remained at 9.7% for the third straight month. March's jobs gain is only the third increase since the start of recession two years ago.

Subsequent US economic data also turned out better than expected, including a rise in the Institute for Supply Management (ISM) services index, and an 8.2% rise in pending-home sales for February 2010.

The major US retail chains posted a record rise in monthly same-store sales for March 2010, helped by an early Easter holiday, better weather conditions, an improving job market and a low base last year. Same store sales rose 9.1% in March 2010, the largest monthly jump since records started in 2000 and ahead of estimates for a 6.3% rise.

Minutes to the US Federal Reserve meeting held last month offered no surprises. Low inflation suggests that interest rates will remain low for some time.

Having said that, concerns over Greece's debt woes resurfaced again, causing some jitters. Although the country is still able to raise funds from the capital market, rising borrowing costs is a concern and could jeopardise the country's attempt to lower its deficit.

Sentiment also turned a bit weaker on news of an unexpected decline in US consumer credit and a decline in new machinery orders in Japan.

The recent spate of mostly better-than-expected data suggests the global economic recovery is on track, led largely by the manufacturing sectors in Asia and even the US. The US labour market is now starting to show signs of improvement. That will give more impetus to consumer spending, which has been the traditional driver of the US economy, now that the manufacturing-led recovery is well under way.

Nonetheless, investors are also weighing between growing signs of a more sustainable economic recovery — and whether that has already been priced into stock valuations after a long global rally since March 2010.

Crude oil futures traded around US$86 (RM274.34) per barrel, an 18-month high. However, rising costs could also spur the threat of inflation and potentially dent the economic rebound.

On the local front, shares of Pos Malaysia were actively traded and saw large gains on speculation of a new shareholder after the New Economic Model identified it as a candidate for privatisation. The postal company was later granted a much-deserved tariff hike, after 18 years. The ringgit, meanwhile, strengthened to about RM3.21 versus the US dollar.

Portfolio review
After the preceding two weeks' strong performance and despite mixed market conditions, our basket of 19 stocks continued to outperform the benchmark index by a large margin last week, rising by 2.81% compared with the FBM KLCI's 0.15% decline.

Including our large cash reserves (for which no interest is imputed), the total portfolio value increased by 2.38% to RM590,580.

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 RM430,580. 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 269.1% compared with our capital of RM160,000. By comparison, the FBM KLCI was up by 106.2% 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, ten of our stocks rose, seven fell and two were unchanged (Notion VTec and Selangor PROPERTIES []).

The top gainers for the week were led by CSC Steel (up 10.7%), HELP International Corp (up 9.4%), Muhibbah Engineering (up 5.9%) and Ireka Corp (up 4.5%). CSC Steel's shares, which we had acquired primarily for yield purposes, has generated us very handsome returns of 86.7% for an eight-month investment, since we acquired them in August 2009.

The week's losing stocks were led by Three-A Resources (down 4.4%) and Tanjong plc (down 2.9%). We are leaving 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