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FBM KLCI - Sideways on Capital Outflow & Syria Worries

More Consolidation with Downward Bias
Blue  chips  were  stuck  in  range  bound  trade  last  week,  with  the  benchmark  FBM  Kuala Lumpur  Composite  Index  (FBM  KLCI)  whipsawing  as  rebound  encouraged  by  better-than expected economic numbers from major global economies failed in attracting strong  follow through  buying  interest.  Instead,  profit-taking  and selling  on  strength  checked  gains,  with concerns over sustained capital outflows from emerging markets and increased geopolitical tensions over Syria dampening market tone.

Week-on-week,  the  FBM  KLCI  slipped  3.78  points,  or  0.22%  to  1,723.8,  as  gains  on  Public Bank (+34sen) and Tenaga (+18sen) were overshadowed by losses on CIMB (-9sen), Felda Global  Ventures  (-20sen)  Petronas  Chemicals  (-12sen)  and  Sapura  Kencana  Petroleum  (-8sen). Average daily traded volume and value decreased to 1.32 billion shares and RM1.52 billion, compared to the 1.9 billion shares and RM2.5 billion respectively the previous week, as institutional participation on blue chips declined significantly.

Malaysia’s stronger than expected exports for July,which was announced last Friday, failed to create any excitement in the market as investors opted to stay on the sideline ahead of the Fed  meeting  next  week  and  the  impending  strike  on  Syria  after  the  US  Senate  Foreign Relations  Committee  gave  the  green  light  to  attack  last  Wednesday.   Supported  by  firmer
crude  oil  prices  and  recovery  in  the  electrical  and electronics  exports,  the  4.5%  YoY expansion  to  RM60.7bn  in  outbound  shipments  was  indeed  the  highest  recorded  since October 2012 and much stronger than consensus growth expectation of 0.3%. However, a greater acceleration of 6.2% YoY in imports led to  a lower trade balance of RM2.9bn from 4.3bn a month ago.

Looking ahead, the economic recovery seen in the US, Europe and China should contribute to sustainable  recovery  in  exports  in  the  2H13  but  market  sentiment  would  continue  to  be downplayed  by  concerns  over  quantitative  easing  in  the  US  and  geopolitical  tensions, especially  in  the  next  two  weeks.  The  US  Congress  is  expected  to  decide  on  airstrikes  on Syria  this  week,  albeit  opposition  from  most  G-20  members  last  week,  while  the  Fed  will meet on the 18th and 19th this month to decide on the QE tapering. Although the non-farm payroll  number  of  169,000  for  August  trailed  market expectations  of  180,000,  a  potential tapering  is  highly  likely  judging  from  the  broad  support  from  the  policy  making  body’s
embers last month. Nonetheless, the weaker than expected payrolls could cap the tapered amount to be within consensus expectations of US$10bn, solely by reducing the purchase of Treasury securities while maintaining the monthly purchases of mortgage backed securities.

Considering that next Monday (16th September) is a  public holiday for Malaysia, investors could  opt  to  reduce  exposure  by  this  Friday  and  stay  on  the  sideline  ahead  of  the  Fed meeting  next  week.   Thus,  for  the  brave  hearted,  this  week  could  provide  some  buying opportunities to trade on undervalued blue chips and UMNO related stocks. Separately, last Saturday’s news that Tokyo will host the 2020 Summer Games after defeating Istanbul could revive share price of some resource based counters  like those in the timber sector but the impact  could  be  momentary  as  the  mammoth  event  will only  take  place  in  a  very  distant
future.

 

That aside,  worries about  Malaysia’s deteriorating  credit worthiness, especially after a data provider  announced  the  country’s  default  risk  has  climbed  above  that  of  the  Philippines, could also limit any potential rally ahead of the UMNO election on 19th October as investors await solid measures from the government to address the budget deficit without sacrificing much on economic growth when the Budget 2014 is tabled on 25th October

 

by TA Securities