This article first appeared in The Edge Malaysia Weekly, on March 7 - 13, 2016.

FINANCIAL markets stayed choppy in February. Investors are still, by and large, very jittery and have been reacting to headlines on a day-to-day basis. In fact, many seem to have taken a “glass half empty” stance since the beginning of this year amid rising uncertainties.   

Case in point, there was growing talk of the US heading back into recession, even though underlying economic data has actually been quite supportive of a recovery that is gaining in strength, albeit at a slow pace. Traders are pricing in far fewer interest rate hikes than have been indicated by the Federal Reserve.

We believe that the US economy could surprise on the upside.  (A more detailed analysis is available in The State of the Nation, February 2016) 

The output freeze agreement between major producers, Saudi Arabia and Russia, appeared to have created a floor for oil prices — even if it does not in itself resolve the current oversupply problem. Brent crude futures rose to US$36 per barrel at end-February.

In short, the global economic outlook may not be as dire as recent market movements suggest. Upbeat headlines out of the US as well as steadier oil prices will help assuage investor concerns. But they by no means imply that our problems are over. 

The domestic economy will slow and the business environment will remain very tough on the back of the rising cost of living and falling consumer confidence.

Against this backdrop, we believe our defensive Income portfolio will continue to fare well.

Our basket of stocks recovered smartly in February, gaining 3.6% compared with the FBM KLCI’s 0.2% advance.

Most of our stocks delivered solid earnings in the latest 4Q2015 quarter. 

Carlsberg was the biggest gainer last month. Its net profit was up 2% in 2015, bolstered by better sales in Singapore. The company declared a slightly higher final dividend of 67 sen per share, up from 66 sen per share last year, bringing total dividends to 72 sen per share. 

We disposed of our entire stake in Star, netting a 2% return, and reinvested the proceeds in Panamy. The latter too reported solid earnings for 9MFYMar2016, with net profit totalling RM110.7 million, up 46% y-y. With a cash pile of RM575 million, we expect dividends to significantly improve over that in FY15. The company has an average payout ratio of 83% over the past six years.

Our portfolio’s total returns now stand at 17.4% after just 9 months. Over the same period, the FBM KLCI was down 4.4%.

For readers following this portfolio, starting April 2016, InsiderAsia Income Portfolio will be available exclusively on www.absolutelystocks.com.

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