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Market Conditions Remain Unfavourable for FBMKLCI

bnv The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) suffered a setback last week after strong October U.S. jobs data fueled expectations the US Federal Reserve will raise interest rates at its December policy meeting. Oil & gas, banking and plantation stocks re the main drags on the index, but a sharp overnight Wall Street correction sparked by weak crude oil prices was offset by local funds bargain hunting ahead of the weekend.

For the week, the FBM KLCI retraced 26.79 points, or 1.6% to close at 1,658.91, with Genting Berhad (-48sen), Sime Darby (-31sen), CIMB (-14sen), IOI Corp (-19sen) and Public Bank (-22sen) representing more than half of the index’s loss. Average daily traded volume and value stabilized at 2.2 billion shares and RM2billion, compared with the 2.5 billion shares and RM2.2 billion average respectively the previous week.

The third quarter 2015 (3Q15) GDP announcement came and went without much excitement as the 4.7% YoY growth was largely within market expectations. That is the slowest growth since 2Q13 as the negative effects on consumption and private investment were compounded by weak commodity prices and challenging external demand. Malaysia is no exception as our closest neighbours Singapore (1.4% YoY) and Indonesia (4.7% YoY) also announced weaker growth for the quarter. Thailand is expected to reflect a similar trend when its 3Q15 GDP is announced later today.

However, the continued deceleration in growth to 4.7% YoY in 3Q15 vs. 4.9% YoY in 2Q15 points to challenging period ahead if the turnaround in net exports and private investment are not sustainable amidst weakening private consumption. Malaysia’s economy is expected to sustain the 4.7% YoY expansion in the 4Q15, leading to a full year growth of 5%. Next year’s growth is expected to cool off to 4.6%, within the government’s official target range of 4% and 5%, on the back of weaker external demand and softer commodity prices.Nonetheless, these factors could contribute to deteriorating current account surplus, exert pressure on government’s fiscal deficit target and affect investor sentiment.

While the continued strength in the US labour market provides some hope that a stronger US economy can mitigate the impact of any rate hike in the US, most likely next month, and cushion the negative effects on external demand from softer growth prospects out of China and Europe, which is facing added pressure from terrorists’ attack in Paris, it is not expected to dissuade foreign fund managers from exiting our capital market.

Given the still high foreign shareholding in Malaysian Government Securities (around 45%) ananticipation of further weakening in ringgit as we approach mid-December, as the US Fed announces its final policy decision for the year, investors should continue to expect greater degree of volatility in the market. The FBMKLCI should stabilise after the policy meeting, even if there is a hike in the US interest rate in December, as the market should have factored in such possibility prior to that and anticipate the Fed to pause for a while (potentially until March 2016) before further tightening. However, as the rout in crude oil prices could continue next year with excess supply from Iran flooding the market amid cooling demand, any positive market sentiment could be swayed easily.

With so much uncertainty anticipate further deterioration in the benchmark index this week. However, there is a window of trading opportunity for the brave hearted to accumulate on price weakness within the next one month and sell-on-strength early next year.

As for economic data this week, Malaysia’s October CPI that will be released this Friday is expected to show moderation (consensus forecast is 2.3%) compared to September (2.6% YoY). Foreign reserves data on the same day could shed some light on funds flow behaviour. On the US front, forward indicators like housing starts, building permits and leading index this week should provide ome clue about the health of the US economy and the Fed’s next policy decision.


by TA Securities

Sell on Strength Ahead of Budget 2016

The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) sustained moderate gains last week despite profit-taking in the four-day week due to the Awal Muharam holiday, with robusttrading momentum focused mostly on the ACE Market and small cap sector. A strong rally in China  stocks with a weekly gain of more than 6 percent sparked by stimulus hopes, and Wall Street rally due to lower odds for a rate hike this year following weak US economic data spilled over to boost sentiment in the local market.

The FBM KLCI added 10.28 points, or 0.6 percent last week to 1,716.82, as Tenaga (+30sen), IHH Healthcare (+36sen), Public Bank (+28sen) and AMMB (+21sen) contributed to most of the index’s rise. Average daily traded volume and value improved to 2.38 billion shares and RM2.36 billion, compared to the 2.3 billion shares and RM2.54 billion respectively the previous week, with trading momentum switching to ACE Market and small cap stocks.

The FBM KLCI pared earlier losses to close on a positive note on Monday, as local fund buying
supported index-linked stocks such as Tenaga and Sime Darby, while externally China stock strongly outperformed regional peers on hopes for further stimulus. The index added 3.32 points
to end at 1,709.86, off an early high of 1,719.9 and low of 1,700.65, as gainers edged losers 430 to 404 on total turnover of 2.09bn shares worth RM2.2bn. Blue chips moved sideways amid profit-
taking ahead of the Awal Muharam holiday, with sentiment dampened by regional weakness due to China’s soft trade data. The KLCI ended 1.28 points up at 1,711.14, after ranging between high of 1,716.75 and low of 1,705.30, as gainers edged losers 433 to 414 on robust trade totaling 2.47bn shares worth RM2.45bn.

Blue chips were range bound Thursday on profit-taking after investors returned from the Awal Muharam holiday break, as trading momentum focused mostly on ACE Market and small cap issues. The KLCI closed up 2.11 points at 1,713.25, off an early low of 1,706.87 and high of 1,721.34, as gainers led losers 476 to 376 on steady total turnover of 2.4bn shares worth RM2.53bn. The overnight rally on Wall Street due to fading odds for a rate hike this year following
the release of a slew of weak economic data spilled over to sustain gains on the local market Friday, but overbought momentum encouraged profit-taking ahead of the weekend. The index added 3.57 points to end the week at 1,716.82, off an early high of 1,720.42 and low of 1,713.67, as gainers edged losers 487 to 345 on robust turnover of 2.57bn shares worth RM2.2bn.

Trading range for the local blue-chip benchmark index shrank to 20.69 points last week, compared to the huge 88.33 points range the previous week, as blue chips stayed mostly range bound at fresh two-month highs with profit-taking cushioned by renewed foreign fund buying interest. For the week, the FBM-EMAS Index added 71.14 points, or 0.61 percent to 11,805.66, while the FBM-Small Cap Index rose 86.6 points, or 0.56 percent to close the week at 15,484.18.

The daily slow stochastic indicator for the KLCI is now deep in overbought territory after
sustaining at fresh two-month highs, while the weekly indicator is approaching the overbought
region. The 14-day Relative Strength Index (RSI) indicator has climbed to a higher reading of 69.65, just below the overbought reading of 70, while the 14-week RSI improved to a better reading of  52. 25


Chart 1
fbm klci chart1

The bullish expansion sustained on the daily Moving Average Convergence Divergence (MACD)
trend indicator, while the weekly MACD indicator also expanded positively following the previous
week’s buy signal. On the 14-day Directional Movement Index (DMI) indicator, the +DI and –DI lines also retained the bullish expansion on a rising ADX line, suggesting a developing uptrend.


Chart 2
fbm klci chart2


Given the overbought technical momentum as clearly shown on the daily slow stochastics indicator, the FBM KLCI is likely to encounter profit-taking resistance this week, especially if the index were to climb hightowards the key 200-day moving average resistance, now at 1,741. Nonetheless, optimism over potential stimulus measures contained in the upcoming Budget 2016 this Friday to boost the domestic economy should lift market sentiment.


Immediate resistance for the index stays at 1,728, th61.8% Fibonacci Retracement (FR) of the1,867 to 1,503 selloff, with the 200-day moving average at 1,741 acting as a major technical hurdle. Looking ahead, a decisive break above this level will see 1,781, the 76.4%FR, as the next upside hurdle. Immediate support is upgraded to 1,700, followed by the 100-day moving average at 1,679, with better supports at 1,671/1,660, and then 1,642, the 38.2% FR.


Chart 3

fbm klci chart3 

Strategy-wise, however, further gains on Axiata,, Gamuda, Genting Bhd, IOI Corp, Maxis,
Sime Darby and TM will be attractive to sell ahead of potential profit-taking correction ahead.


by TA Securities