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
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