PROFIT-TAKING LIKELY TO CONTINUE
AFTER the FTSE Bursa Malaysia KLCI (FMB KLCI) reached a fresh two-year high last week, driven by a stronger ringgit that rose to a five-month high of RM4.32 against the US dollar, the local stock market went into profit-taking mode.
The market was sparked by the unexpected termination of a majority stake sale (60 per cent stake) of Bandar Malaysia to IWH Crec Sdn Bhd (ICSB), a consortium comprising Iskandar Waterfront Holdings Sdn Bhd (IWH) and China Railway Engineering Corp (M) Sdn Bhd, and more certainty for the United States interest rate hike next month.
However, stocks bounced back ahead of the weekend, as investors were comforted by the government’s assurance on continued development of Bandar Malaysia and as banks rebounded on bargain-hunting interest.
For the week, the FBM KLCI slipped 5.32 points, or 0.3 per cent, to 1,762.74, as losses on Petronas Gas (-42 sen), Hap Seng Consolidated (-14 sen) and Petronas Dagangan (-10 sen) were offset by gains on Hong Leong Financial Group (+14 sen), AmBank (+11 sen) and Maybank (+10 sen). Average daily traded volume improved to 3.7 billion shares, while value stayed flat at 2.98 billion, compared with the 3.44 billion shares and RM2.98 billion average, respectively, the previous week, as robust buying momentum shifted to the small cap and ACE Market sector.
The outcome of the final round of French election yesterday may not have any long-lasting positive impact on global financial markets this week should Emmanuel Macron be chosen as the French president as share prices have largely factored in his victory.
As for Bandar Malaysia, the rumour mills will be active again in speculating the next potential suitor for this mammoth project that is slated to have a gross development value of more than RM200 billion.
Rumours have resurfaced that the Malton Group, together with China-based Dalian Wanda Group, is eyeing for the job again and a government-linked fund could be roped in as part of the consortium. Thus, we can continue to witness some price volatility in shares of construction stocks and related players such as Malton and WCT, which surged on Friday.
Bank Negara Malaysia is expected to maintain its policy rate at three per cent when it meets on Friday although inflation expectations for this year have gone up nearer to upper-end of its forecast range of three to four per cent and real interest rate has turned negative in the first three months of this year.
Bursa Malaysia shares rose last Tuesday, with the benchmark surging to a near two-year high. The FBM KLCI climbed 10.41 points to close at 1,778.47, off an early low of 1,769.16 and high of 1,781.55, as gainers led losers 594 to 411 on robust turnover of 3.88 billion shares worth RM3.48 billion.
Stocks fell for profit-taking correction the next day, led by key blue-chip heavyweights in tandem with regional markets. The FBM KLCI fell 5.96 points to close at 1,772.51, off an early twoyear high of 1,784.79 and low of 1,770.06, as losers led gainers 535 to 391 on strong turnover of 3.89 billion shares worth RM3.04 billion.
The local market slipped further into profit-taking correction mode on Thursday. The FBM KLCI ended 13.84 points down to 1,758.67, off an early high of 1,768.71 and low of 1,754.23, as losers trashed gainers 824 to 185 on lower turnover of 3.44 billion shares worth RM2.88 billion.
Stocks staged mild recovery from the profit-taking correction ahead of the weekend. The index climbed 4.07 points to close at 1,762.74, off an early low of 1,757.54 and high of 1,763.92, as gainers led losers 617 to 327 on higher turnover of 3.57 billion shares worth RM2.49 billion.
Trading range for the blue-chip benchmark index last week expanded to 30.56 points, compared with the narrow 13.74-point range the previous week, as the index suffered a deep correction from a fresh two-year high.
For the week, the FBM Emas Index eased 33.99 points, or 0.27 per cent, to 12,597.53, but the FBM Small Cap Index added 49.26 points, or 0.28 per cent, to 17,710.98, thanks to strong rotational buying commitments in small cap and ACE Market stocks by retailers.
Due to last week’s profit-taking correction, the daily slow stochastic momentum indicator for the FBM KLCI has hooked down towards the neutral zone to neutralise prior overbought momentum, but the weekly indicator has re-hooked downwards in overbought territory, suggesting this correction may probably still be in the early stages.
On the other hand, the 14-day Relative Strength Index (RSI) indicator has re-hooked upwards to a neutral reading of 57.60 as of Friday, but the 14-week RSI hooked down from slightly overbought at 68.33, and could weaken further if last week’s rebound lacks follow-through.
Meanwhile, on trend indicators, the daily Moving Average Convergence Divergence (MACD) indicator’s trigger line has eased downwards to suggest reducing upside momentum, but the uptrend momentum on the weekly MACD indicator stayed intact. As for the 14-day Directional Movement Index (DMI) trend indicator, the +DI and –DI liners have contracted on a mildly easing ADX line, signalling a deterioration of the uptrend strength.
While daily momentum indicators for the FBM KLCI have been fully neutralised by last week’s profit-taking correction, weekly indicators are still hooking down and displaying bearish potential. Also, weaker trend indicators imply this correction may need to absorb further profit-taking pressure this week, before bargain hunters return to rebuild support.
As for the index, immediate uptrend supports will be at 1,750 and 1,739, the rising 30- and 50day moving average levels, with better support from the lower Bollinger band at 1,723.
Immediate upside hurdle stays at 1,782, the 76.4 per cent Fibonacci Retracement of the 1,867 to 1,503 downswing closely matching the recent two-year high, followed by the 1,800 psychological level and May 18 2015 high of 1,823.
Bank Negara Malaysia is expected to maintain its policy rate at three per cent when it meets on Friday although inflation expectations for this year have gone up nearer to upperend of its forecast range of three to four per cent