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Malaysia Market Watch 3rd September 2012

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BURSA Malaysia stayed in profit-taking consolidation mode last week, as signs of slower growth in China’s economy overshadowed optimism for further stimulus measures from major global central banks.

Profit-taking ahead of the Merdeka Day holiday on Friday also capped the upside, and pending confirmation from the US Federal Reserve on further monetary easing steps in the immediate term.

As a consequence, the benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) slipped 2.11 points, or 0.13 per cent, last week to settle at 1,646.11, with gains in Genting Malaysia (+17 sen) and IOI Corp (+9 sen) overshadowed by losses on CIMB (-9 sen), DiGi.com (-7 sen), YTL Corp (-5 sen), and Hong Leong Bank (-26 sen). Average daily traded volume and value stayed flat at 1.27 billion shares worth RM1.3 billion, compared with 1.27 billion shares and RM1.37 billion in the previous week, as most investors stayed aside pending clearer market leads.

The FBM KLCI is expected to remain in consolidation mode, with a downside bias, this week pending leads from abroad as there are not many significant catalysts locally to drive the benchmark index.

In the US, Fed chairman Ben Bernanke continued to paint hopes for more stimulus in a meet in Jackson Hole, Wyoming, last Friday. The US markets reacted positively to his comment that more bond purchases are likely to revive the stagnating labour market. In actual fact, the last two-rounds of asset purchases totalling US$2.3 trillion did little to reduce the jobless rate to below eight per cent as the liquidity mostly went into recapitalising financial institutions and speculative investments than real ventures to add value to the economy.

The first quantitative easing that ran between November 25 2008 and March 31 2010 had a much bigger impact on the equity and commodity markets as the recovery was from a much lower base and most of the excess liquidity found its way into high yielding speculative investments as banks were not convinced about the recovery in-progress to fund capacity expansion and to meet consumers’ capital intensive investments in fixed assets. Compared to the closing a day before it started, one-month later after the programme ended, the Dow Jones Industrial Average (DJIA) rose 30.4 per cent while the FBM KLCI surged a staggering 57.4 per cent. Three months later after it ended, the expansion eased to 15.8 per cent and 53.6 per cent respectively.

Starting from a much higher base, the expansion during the second easing was not that spectacular as by this time around the visible economic recovery absorbed some of the excess liquidity as well. The second easing was in place between November 3 2010 and June 30 2011. This time around, the third, second and first-month run-up to the QE proved more fruitful for the indices as compared to the closing a day before it started as the DJIA rose 4.8 per cent, 8.4 per cent and 3.3 per cent respectively. During the period post expiry it started to ease and gave away some of the gains as shown by the 8.5 per cent, 3.8 per cent and -2.5 per cent changes respectively. The FBM KLCI rose 10.5 per cent, 4.5 per cent and 2.7 per cent during the same period pre-QE but corrected faster at 2.8 per cent, -3.9 per cent and -7.9 per cent post-QE respectively.

As both the US and Malaysian equity markets have done pretty well year-to-date in anticipation of a QE3, do not expect much fireworks in the months ahead even if a QE is announced eventually, potentially in October. Bernanke and his committee members are likely to observe the ISM manufacturing and non-farm payroll numbers tomorrow and on Friday respectively before deciding on the next course of action.

In the interim period, market focus would be on the outcome of the European Central Bank meeting this Thursday where investors are expecting a similar bond buying program to address the European crisis.

Elsewhere, the unexpected shrinkage in China’s manufacturing activity could spook investors when equity markets open today. Its Purchasing Managers Index fell to 49.2 in August from 50.1 in July, indicating a contraction for the first time in nine months as new orders contracted and output rose at a slower pace. This is largely connected to the recessionary pressures seen in Europe and could stoke fears about faster than expected economic easing in China if the government does not react swiftly.

Locally, the central bank is expected to maintain the overnight policy rate at three per cent when it meets on Thursday.

Technical outlook

The local stock market ended softer in cautious trade last Monday, dampened by regional weakness as signs of slower growth in China’s economy overshadowed hopes for further stimulus from major global central bankers. The FBM KLCI was stuck in tight trading ranges between 1,650.14 and 1,647.3 before closing flat at 1,648.13, as losers beat gainers 414 to 344 on moderate trade totalling 1.23 billion shares worth RM1.06 billion.

Stocks declined the next day in line with regional weakness on cautious trade after Japan lowered its economic assessment and investors stayed sidelined pending clearer indication of policy moves from the Federal Reserve. The FBM KLCI slid 1.02 points to close at 1,647.11, off a low of 1,645.58, as losers beat gainers 460 to 276 on trade of 1.21 billion shares worth RM1.1 billion.

The local stock market drifted lower on Wednesday, copying regional peers on concerns China could slow the pace of monetary policy easing in the third-quarter as inflation and home prices may rebound. The FBM KLCI ended 1.53 points down at the day’s low of 1,645.58, as losers edged gainers 363 to 352 on flat turnover of 1.26 billion shares worth RM1.29 billion.

Blue chips extended rangebound trade the following day, with softer regional markets and weak technical momentum encouraging profit-taking ahead of the Merdeka Day holiday on Friday. The index edged 0.53 point higher to close at 1,646.11, off a high of 1,650.85 and a low of 1,643.48, as losers bashed gainers 453 to 280 on higher trade totalling 1.37 billion shares worth RM1.72 billion.

Trading range for the local benchmark index was 7.37 points last week, with the high-low range registered on Thursday, compared to the 7.49-point range the previous week, as blue chips continued to trade sideways.

The daily slow stochastic indicator for the FBM KLCI has retraced to the neutral zone, but the weekly indicator is hooking down and poised to trigger a sell signal in the overbought region. The 14-day Relative Strength Index (RSI) registered a weaker reading at 57.74 as of Thursday, while the 14-week RSI eased marginally to a lower reading at 64.47.

The daily Moving Average Convergence Divergence (MACD) trend indicator is weakening further, suggesting deterioration of up-trend strength, while the weekly MACD is losing upward traction. The +DI and -DI lines on the 14-day Directional Movement Index (DMI) trend indicator remained in positive mode but the ADX line declined to reinforce a non-trending signal.

Conclusion

With technical momentum for the FBM KLCI further eroded last week due to weak buying momentum and negative market breadth, the local stock market is likely to stay in congestion mode with mild downside bias, pending a near-term upside catalyst. The bearish divergence signal on the 14-day RSI remains intact, hence any near-term rallies will likely meet strong profit-taking resistance.

Immediate supports cushioning near-term downside are at 1,641 and 1,630, the respective 30-day and 50-day moving average levels, while stronger support is at 1,620, the July 27 pivot low. Immediate resistance stays at the current record high of 1,655.39 on August 22, next hurdles will be 1,660 and 1,672, the respective 1.618 and 1.764 Fibonacci Projection (FP) of the sell-down from the April 3 peak of 1,609 to the May 18 trough of 1,526, with stronger hurdle seen at 1,691, the one-to-one upside projection target.

Chart-wise, blue chips such as AmBank, IOI Corp, Petronas Chemicals and Tenaga Nasional are attractive to accumulate on weakness for longer-term gains, while property stocks like Glomac, Hua Yang, IJM Land and Mah Sing are also good buying candidates for long-term profits.

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