FBM KLCI Ahead and UMNO Election Rally


The  Prime  Minister  announced  last  Saturday  that  the newly  minted  Bumiputra  Economic Empowerment  Council  will  focus  on  five  strategies  to  give  more  clout  to  bumiputra economic  empowerment  agenda.  The  announcement  that  came  as  a  reward  for  strong bumiputra support in the last 13th GE can be construed as setting the stage right to  get the ball rolling before the UMNO election on 19th October. While investors should read this as a positive  sign  for  a  market  rally  in  the  run-up  to  election,  as  was  the  case  during  the  last UMNO party election in 2009, investors’ appetite in the immediate term could be suppressed by  the  impending  outcome  of  the  US  Federal  Reserve’s  meeting  this  Tuesday  and Wednesday.

There  has  been  much  speculation  surrounding  the  Fed’s  bond  tapering,  potentially beginning this month, after chairman Ben Bernanke expressed last May that the central bank could do so later this year if economic conditions warrants. Consensus expectations point to between US$10bn and US$15bn cut in the US$85bn monthly purchases of US treasuries and mortgage  backed  securities.  A  decision  that  falls  in  line  with  expectations  should  have minimal  impact  on  the  market  while  anything  to  the  contrary  could  cause  a  knee-jerk reaction  as  the  fresh  liquidity  has  sustained  long  term  rates  at  low  level  and  helped  fuel
strong rally in the global equity markets. Economic data out of US so far supports a tapering with recent payroll, jobless claims and services sector numbers endorsing such eventuality.

Besides, anticipate some volatility in the US markets this Friday due to “triple witching” as traders  rush  to  cover  their  positions.  Triple  witching  is  an  event  that  occurs  on  the  third Friday of the final month of every quarter when the contracts for stock index options, stock index futures and stock options all expire on the same day.

 

As such, one can expect the FBM KLCI to trade sideways ahead of Wednesday (it would be Thursday here  by  the  time  we  know  it)  in  this  holiday-shortened  trading  week.  Any  price weakening could provide opportunity to pick-up undervalued UMNO related counters (UEM Sunrise  (Not  Rated),  MRCB  (Not  Rated),  CIMB  (TP:  RM8.90),  Affin  (TP:  RM5.00), Boustead  (TP:  RM6.55),  KUB  (Not  Rated) and  etc.)  and  those  related  to  domestic expansion  (Sapura  Kencana  (TP:  RM5.27),  Gamuda  (TP:  RM5.34),  Perisai  Petroleum (TP:  RM2.02),  Naim  (TP:  RM4.10)  and  etc.)   That  aside,  the  CPI  for  August  that  will be released this Wednesday is expected to be tame, matching the previous month’s 2%, but it is expected to rise with the recent increase in fuel prices. While there is no pressing need for our central bank to raise its  3% OPR this year, the pressure will increase as neighbouring countries raise their interest rate to defend their weakening currencies.

 

by Ta Securities

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