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Malaysia Market Watch 24th to 28th September 2012

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Defensive gaming stocks such as Genting Bhd and Genting Malaysia are bargains on weakness for longer-term upside, says a head of research.

Bursa Malaysia went back into correction mode last week, sparked by regional weakness because of rising tensions between Japan and China over a territorial dispute, and slowing global growth concerns following weaker exports from Japan and signs China’s manufacturing may shrink for the eleventh month in a row.

Subsequently, the benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) corrected 19.25 points, or 1.17 per cent, to 1,623.7, with 56 per cent of the fall contributed by Maybank(-25 sen), Genting Bhd (-43 sen) and CIMB (-16 sen). Average daily traded volume and value were 962.1 million shares and RM1.75 billion, compared with 946.5 million shares and RM1.7 billion in the previous week.

Macro concerns related to economics, politics and religious issues dominated the international scene last week with insensitivity to others’ religious beliefs stoking fresh worries about retaliatory moves that could destabilise economic growth. The US, struggling to maintain its economic growth trajectory on the back of a weak labour market, just announced a third round of quantitative easing to arrest a decline in employment and boost growth that had no positive impact on our local market. It certainly cannot afford another war against anyone, including Iran, after a big mistake on Iraq that led to a big hole in its pockets and the current economic malaise.

That aside, externalities notwithstanding, Malaysia has domestic issues that need to be resolved to attract fence sitters into the equity market. Chief among them is the impending 13th general election and its outcome. Meanwhile, expectations are running high that the government will announce a people-friendly budget on Friday.

While being complementary and people-centric to lift domestic sentiments, the 2013 Budget is expected to walk a thin line without hurting the overall fiscal credibility.

Evolving around the long-term measures ascribed under the framework of Economic Transformation Programme (ETP), it would continue to emphasise private sector’s role to drive economic growth towards achieving an inclusive and sustainable developed nation status by 2020. anticipate a mid-single digit contraction in development spending for 2013 as the government allocates a higher operational expenditure to meet the probable increase for emoluments and social services.

While it is not expected to pursue any tax cuts to boost disposable income directly until the implementation of goods and services tax, the government is expected to continue playing a caring role towards the low-income group to compensate for the high living cost, especially in the big cities. As for middle-income earners, the government could adjust the tax bracket, standardising the maximum personal tax applicable at par with the corporate tax rate of 25 per cent, or separate the maximum exemption allowable for contributions to the Employees Provident Fund and insurance premiums after increasing the retirement age.

No doubt goodies aimed at low-income earners would be a boon for the consumer and telco sectors that would benefit largely from the higher disposable income. While larger construction players like Gamuda will benefit from the outstanding big-ticket infrastructure projects outlined under the ETP, smaller players would continue to latch on to sub-contract works. For instance, the requirement for steel structures would be beneficial to Eversendai, which is undervalued currently.

The government addressing the housing affordability problem will benefit providers of affordable homes like Huayang and Crescendo while real estate investment trusts will receive a boost if the withholding tax is removed.

Overall, do not expect any major catalyst in the budget for the equity market. Nonetheless, anticipation of a friendly budget is expected to neutralise the downside pressure on the benchmark index early this week as we move closer to the weekend.

Technical outlook

In the index futures market, the spot month September contract traded on Bursa Malaysia Derivatives slipped 21 points or 1.3 per cent last week to 1,617.5, increasing the discount to the cash index to 6.2 points, compared to the 4.45-point discount in the previous week, as the futures market undertone remain depressed.

Last Tuesday, the local stock market ended softer in line with regional weakness, sparked by rising tensions between Japan and China over some islands claimed by both countries and concerns over slowing global growth. The FBM KLCI slid 2.62 points to close at the day’s low of 1,640.33, off an earlier high of 1,651.66. Losers edged gainers 402 to 345 on slow trade totalling 843.2 million shares worth RM1.88 billion.

A rebound on regional stocks the next day fuelled by Bank of Japan’s expansion of its asset purchase programme to 55 trillion yen, promptly following the US Federal Reserve’s QE3 measure to boost growth, lifted the domestic market from its congestion mode. The FBM KLCI ended 5.78 points up at 1,646.11, off an early low of 1,640.81, as gainers led losers 353 to 332 on improved turnover of 1.03 billion shares worth RM1.74 billion.

However, blue chips staged a correction on Thursday, mirroring regional falls after weaker exports from Japan and signs China’s manufacturing may shrink for an eleventh month fuelled global growth concerns. The FBM KLCI tumbled 20.52 points, or 1.25 per cent, to settle at 1,625.59, off a low of 1,620.68, as losers bashed gainers 551 to 184 on moderate trade of 899.3 million shares worth RM1.46 billion.

Stocks extended losses ahead of the weekend, with blue chips leading falls, ignoring the firmer regional tone as raw material producers gained after crude oil and metals prices rebounded. The benchmark index eased 1.89 points on Friday to settle at 1,623.7, off a low of 1,619.08, as losers edged gainers 350 to 337 on higher total trade of 1.07 billion shares worth RM1.91 billion.

The trading range for Bursa Malaysia’s benchmark index was 32.58 points last week, compared to the 41.64-point range the previous week.

Among the lower liner indices, the FBM-Emas Index shed 126.94 points, or 1.14 per cent, to 11,048.67, while the FBM-Small Cap Index dipped 75.75 points, or 0.64 per cent, to 11,774.66, as small-cap stocks stayed depressed on weak retail buying interest.

The daily slow stochastic indicator for the FBM KLCI flashed another sell signal at the upper neutral region last Friday, a bearish short-term signal which is reinforced by the bearish hook-down on the weekly indicator. The 14-day Relative Strength Index (RSI) has also retraced to a weaker reading at 43.67, while the 14-week RSI weakened to a reading at 55.05.

As for the daily Moving Average Convergence Divergence (MACD) trend indicator, it re-hooked downwards below the zero line, reinforcing the bearish divergence signal on the weekly MACD which sparked a sell signal the previous week. Meantime, the +DI and -DI lines on the 14-day Directional Movement Index (DMI) trend indicator are going through a bearish expansion on a declining ADX line, suggesting a weakening and trendless market.

Conclusion

All momentum and trend indicators have turned more negative following last week’s correction on the index, suggesting further downside bias in coming weeks. Note also the weak buying momentum on the local stock market as domestic institutional funds refused to support blue chips amid increasing signs of slowing global growth. Hence, the index is likely to remain under pressure in the immediate term.

The index must sustain above 1,609, the lower Bollinger band matching the April 3 peak, to prevent a deeper correction towards better retracement supports at 1,591, the 50 per cent retracement of the run-up from 1,526.6 low on May 18 to the 1,655.49 peak of September 3, and 1,575, the 61.8 per cent retracement. The 30 and 50-day moving averages, which are converging towards 1,640, will be the immediate upside hurdle with the 1,655.49 record peak of September 3 acting as a tougher hurdle.

Chart wise, defensive gaming stocks such as Genting Bhd and Genting Malaysia are bargains on weakness for longer-term upside, while property and construction related lower liners like Glomac, Hua Yang, IJM Land, Mah Sing, MRCB and UEM Land are also attractive to buy on dips for medium-term gains.

The subject expressed above is based purely on technical analyses and opinions of the writer. It is not a solicitation to buy or sell. – BTimes ( By Kaladher Govindan)