N. KOREA JITTERS WEIGH ON MARKET
The market undertone is expected to remain weak until investors are convinced the ongoing war of words between the US and North Korea will not evolve into a nuclear war.
THE benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) tumbled on Friday due to investor jitters sparked by the overnight Wall Street slump triggered by rising geopolitical tensions in North Korea.
This is after regional market strength due to the previous Friday’s stronger-than-expected United States jobs data lifted the local bourses in six consecutive trading sessions up to a six-week high.
For the week, the FBM KLCI gave back 7.57 points, or 0.43 per cent, to end at 1,766.96, as losses on British American Tobacco (-RM1.21) and major banking heavyweights Hong Leong Financial Group Bhd (-40 sen), Hong Leong Bank Bhd (+20 sen) and RHB Bank Bhd (-20 sen) overshadowed gains in CIMB (+18 sen) and Public Bank Bhd (+9 sen). Average daily traded volume and value dipped slightly to 1.69 billion shares and RM1.81 billion, compared with the 1.75 billion shares and RM1.96 billion, respectively, in the previous week.
The market undertone is expected to remain weak until investors are convinced the ongoing war of words between the US and North Korea would not evolve into a nuclear war.
A war in the Korean Peninsula will not only affect the two nations but also US allies — South Korea, Japan and Taiwan. Potential involvement of China and Russia, North Korea’s allies, will make the situation worse, which will affect the global economy.
The technology sector will be crippled due to the dominance played by the US allies in the global product supply chain.
As such any sign of increased tension may cause higher price volatility in the technology stocks, which could be a buying opportunity if one believes the war of words won’t escalate.
With the current uncertainty, investors should not worry too much if the forward indicators, such as the US building permits and starts, which will be released on Wednesday, come in strongerthan-expected or if there are hints in the US Federal Reserve’s July meeting minutes, which would be released the following day, about a soonerthan-expected further increase in the interest rate and/or the timing of the quantitative easing tapering.
Blue chips rose last Monday, pushing the benchmark index up to a six-week high, lifted by regional strength. The FBM KLCI gained 3.38 points to close at 1,777.91, off an early low of 1,771.90 and high of 1,778.48, but losers beat gainers 516 to 363 on improved turnover of 1.94 billion shares worth RM1.67 billion.
The key index managed to end higher the next day despite widespread profit-taking on the broader market, lifted by gains in key banking heavyweights Maybank and CIMB. It added 3.74 points to settle at 1,781.65, off a low of 1,775.78 and high of 1,782.63, but losers trashed gainers 602 to 269 on active turnover of 2.09 billion worth RM2.25 billion.
Stocks closed lower on Wednesday after rising for six consecutive trading sessions. The FBM KLCI shed 3.71 points to end at 1,777.94, after swinging within a tight range bordering an early high of 1,779.77 and low of 1,775.99, as losers beat gainers 452 to 317 on slower trade totalling 1.42 billion shares worth RM1.73 billion.
The broader market extended profit-taking consolidation the following day. The FBM KLCI closed flat at 1,777.77 after oscillating between a high of 1,778.18 and a low of 1,773.64, as losers swamped gainers 624 to 259 on more cautious turnover totalling 1.35 billion worth RM1.50 billion.
The market fell into a correction mode ahead of the weekend, sparked by increased nervousness among investors following the overnight Wall Street slump. The index tumbled 10.81 points on Friday to end at the day’s low of 1,766.96, off an early high of 1,775.34, as losers trumped gainers 826 to 148 on moderate trade totalling 1.64 billion shares worth RM1.89 billion.
The trading range for the bluechip benchmark index last week was 15.67 points, compared with the 14.5-point range the previous week, as key index heavyweights slumped from a six-week high after last Friday’s sell-off. For the week, the FBM Emas Index lost 117.43 points, or 0.93 per cent, to close at 12,502.44, while the FBMSmall Cap Index plunged 593.48 points, or 3.45 per cent, to 16,622.68, as small-caps tumbled on heavy retail profit-taking activities.
Friday’s steep correction triggered a sell signal on the daily slow stochastics indicator for the FBM KLCI from a very overbought territory, implying further profit-taking correction potential this week, while the weekly indicator’s signal line dipped back down to reinforce the bearish daily indicator. The 14-day Relative Strength Index (RSI) indicator also slumped to a bearish reading of 47.82 after last Friday’s correction, while the 14week RSI dipped to a weaker reading at 58.17.
Meanwhile, the daily Moving Average Convergence Divergence’s (MACD) signal line also hooked back down to suggest bearish potential, which is reinforced by the weak trend reading on the weekly MACD indicator. The +DI and -DI lines on the 14day Directional Movement Index (DMI) trend indicators are poised to trigger a sell signal on further weakness, with the ADX line rising to imply an emerging downtrending market.
Fresh bearish technical momentum headlined by a daily stochastics sell signal implies further weakness ahead for the FBM KLCI following last Friday’s selloff. Downside momentum and cautious undertone on the local market could increase on further sabre rattling from North Korea and the US as they jostle for supremacy in the North Asian geopolitical space.
On the index, a confirmed breakdown below the 100-day moving average level at 1,764 may accelerate downward correction to next major support at 1,729, matching a key support in April, while crucial uptrend support is available at the 200-day moving average at 1,715. Immediate overhead resistance will be at 1,783, the upper Bollinger band, followed by the 16 June peak of 1,796.