FBM KLCI Technical Rebound Later This Week

Blue chips on Bursa Malaysia extended losses for a  fourth straight week, forcing the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) down to a two-month low, as selling pressure persisted despite regional strength supported by hopes for a resolution on the US fiscal cliff, improved economic data and speculation China will act to cushion the economic slowdown.

The FBM KLCI lost 14.96 points, or 0.92 per cent, to 1,614.32, with DiGi.Com (-22 sen), Axiata (-17 sen), IOI Corp (-14 sen) and Petronas Chemicals (-17 sen) contributing to three quarters of the index's fall. Average daily traded volume and value recovered to 959 million shares and RM1.49 billion, compared with 854.7 million shares and RM1.52 billion in the previous week. Corrections in share prices of defensive plays in the telco and consumer sectors alluded to profit-taking strategy in many of those overvalued counters with the intention of buying back later at lower prices uponretracement.

Many funds out there are struggling to juggle between their portfolios as their mandate requires them to maintain certain level of exposurein the equity market irrespective of market conditions. More often than not, fund managers are in a dilemma of what to buy after selling something, especially when valuations are stretched. However, the mentality to continue holding high dividend-yielding plays due to the need to please their investors with good dividends could take a breather when prices are at levels that are too good for investors to give the profit-taking opportunity a miss. This is true especially when there is certain level of confidence that a down cycle is imminent and cheaper re-entry options would be more prevalent. Of course that are still many undervalued counters that are worthy of consideration like  Maybank (Buy, TP: RM11.30), Affin Holdings (Buy, TP: RM4.40), Tenaga (Buy, TP: RM8.20), UMW (Buy, TP: RM12.56)  and etc.  if one chose to dispose of expensive stocks likeGuiness (Sell, TP: RM16.06), BAT (Sell, TP: RM59.04), Petronas Gas (Sell, TP: RM16.75), Petronas Dagangan(Sell, TP: RM20.60), and etc.

13th GE Around the Corner?

The single largest domestic factor that could causefurther correction in the benchmark index now is the dissolution of Parliament followedby the 13th general election as the PM has hinted that it could be held as early as December. However, this possibility appears remote during the current rainy season and investors would be eagerly watching the Umno general assembly starting tomorrow to gauge the state of affairs in the linchpin of Barisan Nasional.

With a general election around the corner and an uninspiring third quarter earnings season so far, a cautious mood is likely to prevail and induce profit-taking pressure in any eventual rebound. As such, investors are advised to continueto sell on strength and cut exposure. Last Friday's announcement that Malaysia's Consumer Price Index grew by 1.3 per cent year-on-year (YoY) for October was in line with expectations. As inflationary pressures are tame and is likely to average two per cent next year, Bank Negara Malaysia is likely to maintain the accommodative monetary stance on the back of an uncertain external environment.


by TA Securities

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