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
