rightcoastconservative

While CPO prices have declined 20% over the past one-month to M$2,300/t, share prices of our upstream plantation universe have not reacted materially moving by -8% to +3% (-3% to +3% for our top picks) Key question hence is whether this raises the risk of a further sell-off in plantation stocks or will CPO prices recover? Key reasons for the CPO price fall: 1) High inventory levels amid the current high output season. 2) Some easing in demand (though not materially) mainly from slower bio-diesel production. 3) Softening crude oil prices. 4) Better soybean supply prospects with improved weather. Will CPO prices weaken further? CPO’s price competitiveness to soy-oil and crude oil is now at its best since the previous economic crisis in late-2008. CPO's price discount is currently at US$340/t to soy-oil (spot) versus its historical mean discount of US$160/t. CPO at current spot levels of M$2,300/t is also already discounting crude oil pri...

Given the persistent headwinds from the external sector and general election overhang on the home front, we are of  the view that the market will likely be stuck in a range-bound trading pattern in the 4Q. Consequently, we believe  investors would still need to accumulate fundamentally-robust stocks on weakness in order to outperform the  market, while staying defensive on the core holdings will provide greater stability to the portfolio performance. In  addition, as the search for yield will likely remain a key driver for both retail and institutional investors in the 4Q, high  divided-yielding stocks will also continue to outperform the market, in our view. A list of our top picks is reflected in t able below, which includes “buy on weakness” tactical stocks. Which Sector to look at? Sector-wise, our key overweights are telecommunications and banking , although we also have an overweight stance on the consumer, utilities, gaming and rubber gloves unde...