Bursa Malaysia Market View – After Obama Reelection

Wall Street Slump to Extend Correction
The local market extended falls for a fourth day Wednesday, with telcos Axiata, DiGi.com and TM leading losses on persistent profit-taking interest despite regional gains after the incumbent US President Barack Obama was re-elected.The KLCI ended flat at 1,645.53, off an early high of 1,649.94 and low of 1,643.29, as losers beat gainers 367 to 310 on total volume of 1.21bn shares worth RM1.71bn.

 

Breakdown Below 1,636 to Test 1,626
Stocks should extend correction following the overnight slump on Wall Street after the incumbent US President’s re-election brought focus  back to the year-end fiscal cliff and Europe’s debt crisis. With the Republicans holding control of the House of Representatives, this uncertainty is expected to keep the volatility in global equity markets alive and we would maintain our strategy to cut exposure by selling-on-strength and remaining defensive. Certainly, Obama’s re-election will pave way for continued monetary easing that would possibly extend well into 2015. This would keep the US dollar weak while making other regional currencies, including Ringgit, stronger against it. This would  be a boon for businesses with high domestic sales but high USD cost content and vice-versa. As the anticipation of a stronger ringgit already factored in the prices of equities,we do not foresee much reaction along this line.

 

Nonetheless, profit taking pressure will arise mainly from the fact that the FBM KLCI is trading at an expensive mid-cycle PER of 14.2x, versus regional average of around 13.4x on the back external uncertainty in the US, and weakening European and Japanese economies. Any weakness on the index below the lower Bollinger band, now at 1,643, would see a test of the 100-day moving average currently at 1,636, with a breakdown to target first retracement support at 1,625, the 23.6%FR from the 1,526 low of18 May. The next retracement support at 1,606, the 38.2%FR, would provide a stronger cushion. Immediate resistance is retained at 1,655, next would be the 10-day moving average at 1,663, followed by last Monday’s record high of 1,679.

Buy on Weakness AirAsia & Tenaga
Further weakness on AirAsia towards the 26/9/12 lowof RM2.81 would aggravate oversold condition and spark rebound, but immediate upside is seen capped by the 50-day moving average (RM3.11) and upper Bollinger band (RM3.15).A stronger support platform is at RM2.64 (23/9/11 low). Tenaga need to convincingly breakout above the 4/10/12 peak of RM7.22 to target RM7.78 (123.6%FP), RM8.12 (138.2%FP) and RM8.40 (150%FP) going forward. Strong uptrend support is anticipated at RM6.66 (76.4%FR).

 

by TA Securities

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