REBOUND MAY BE SUSTAINED ON RINGGIT FACTOR
THE benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) slipped from a fresh two-month high after a long five-day weekend holiday break on post-window-dressing profit-taking, partly due to increased geopolitical tensions in North Korea.
The downside was, however, cushioned by a three-month debt limit extension deal from the United States, as oil and gas-related stocks recovered in line with the rebound in crude oil prices and the ringgit climbed to 4.18 versus US dollar — the strongest in ten months — boosted by strengthening exports and foreign exchange (forex) reserves.
The FBM KLCI increased another 6.74 points, or 0.38 per cent, last week to 1,779.90 points, with gains in Tenaga (+30 sen), Petronas Chemicals (+29 sen), Genting Bhd (+25sen) and PPB Group (+22 sen) offsetting losses on CIMB (-32 sen) and Petronas Gas (22 sen). Average daily traded volume improved to 2.58 billion shares worth RM2.16 billion compared with 1.68 billion shares valued at RM1.89 billion in the previous week, as investors returned from the long weekend holidays and retail participation improved significantly.
Expectations for a continued recovery in ringgit could act as a strong catalyst for a sustained rebound in the local equity market in the coming weeks ahead of the 2018 Budget. After touching a high of RM4.18, the local currency closed slightly higher at RM4.20.
Although the impact of fund inflows in the equity market was muted, there was notable improvement in bond market as the 10-year Malaysia Government Securities (MGS) yield had been on a steady decline since hitting four per cent last August with a slew of strong economic data, including the second quarter gross domestic product (GDP) that surpassed expectations, bolstering confidence in the economy and the local currency.
The 10-year MGS yield stood at 3.84 per cent last Friday versus a high of 4.47 per cent in the last 12 months.
The weakening of dollar, caused by internal political turmoil involving US President Donald Trump’s administration, lack of fiscal measures to boost the economy, tensions over North Korea and negative impacts of major hurricanes on the US economy, was compounded by the early resignation of US Federal Reserve board vice-chairman Stanley Fischer last week.
Besides, expectations of a delay in the next interest rate hike to early next year on weak core inflation data, exacerbated the weakness in the currency with minimal near-term fundamental catalysts to support a reversal. So, despite any immediate-term technical rebound in the dollar, ringgit may continue to strengthen in the coming months aided by recovery in exports, improvement in crude oil prices and net foreign inflows in the capital market ahead of the 14th General Election.
On the domestic front, the equity market could receive further boost from the Industrial Production Index (IPI) growth for July that will be released today. It is likely to surpass consensus expectations of five per cent year-on-year (YoY) from June’s four per cent based on the stronger-than-expected July exports that rose by 30.9 per cent YoY to RM78.6 billion and a rebound in the Nikkei Manufacturing Purchasing Managers’ Index (PMI), which is a good indicator.
The PMI rebounded to 48.3 in July after hitting a record low of 46.9 in June and continued to trend higher at 50.4 in August, first expansion in the manufacturing sector in three months, thanks to greater new export orders from China, Southeast Asia and the Middle East.
Expectations for a continued recovery in ringgit could act as a strong catalyst for a sustained rebound in the local equity market in the coming weeks ahead of the 2018 Budget.
Externally, in the US, core Consumer Price Index and the retail sales data this Thursday and Friday, respectively, could reinforce the view of a potential delay in further monetary tightening in the US. China, too, will release its retail sales and IPI data for August this Thursday, which are expected to be slightly better than the previous month.
Technical Outlook
Post-window-dressing profit-taking in core banking stocks forced a pullback on the local benchmark index on Tuesday from a fresh two-month high after trading resumed from a long five-day weekend holiday break. The FBM KLCI fell 3.53 points to close at 1,769.63, off an opening high of 1,785.69 and low of 1,766.05, as losers swarmed gainers 596 to 364 on active turnover of 2.52 billion shares worth RM2.18 billion.
The next day, blue chips stayed in a range- bound trade while the broader market was softer amid caution over rising geopolitical tensions in North Korea. The index ended up 2.85 points at 1,772.48, after trading between 1,767.07 and 1,722.62, as losers marginally edged winners 419 to 418 on reduced turnover of 2.21 billion shares worth RM1.81 billion.
The FBM KLCI staged a late rebound on Thursday, helped by late-buying interest in selected heavyweights and encouraged by regional gains after the US president sealed a deal for a three-month debt limit extension.
The index gained 10.5 points to close at the day’s high of 1,782.98, off an early low of 1,772.57, as gainers led losers 533 to 317 on improved turnover totalling 2.62 billion shares worth RM2.41 billion.
Blue chips moved back to sideways trade on Friday amid increased geopolitical tensions in North Korea, as oil and gas-related stocks recovered in line with the rebound in oil prices and as the ringgit climbed to a high of 4.18 against the US dollar — the strongest in ten months — boosted by the strengthening exports and forex reserves.
The index eased 3.08 points to settle at 1,779.90, off an early high of 1,782.81 and low of 1,775.06, as gainers edged losers 473 to 384 on robust trade totalling 1.97 billion shares worth RM2.26 billion.
The trading range for the blue-chip benchmark index last week increased slightly to 19.64 points, compared with the 16.24-point range the previous week. For the week, the FBM EMAS Index added 79.21 points, or 0.63 percent, to close at 12,689.28, while the FBM Small Cap Index rose 130.80 points, or 0.78 per cent, to 16,878.16 as small-cap stocks managed to attract bargain hunters again after the recent profit-taking correction.
On technical momentum indicators, both the daily and weekly slow stochastics indicators for the FBM KLCI have turned positive with hook-ups in the neutral territory despite last week’s choppy movement. However, the 14-day Relative Strength Index (RSI) indicator hooked down to a softer reading of 56.87 after last Friday’s mild dip, but the 14-week RSI retained a hook-up to an improved reading of 61.54.
On trend indicators, the daily Moving Average Convergence Divergence’s (MACD) signal line hooked up for a buy signal, but the weekly MACD indicator’s signal line eased lower and failed to reinforce the positive daily signal. The +DI and -DI lines on the 14-day Directional Movement Index (DMI) trend indicator showed a moderate expansion after flashing a buy signal, but the ADX line stayed weak to indicate non-trending mode.
Conclusion
Given the improving technical indicators, market breadth and trading momentum last week despite the choppy movement on the FBM KLCI, the local market should recover further this week.
Moreover, with renewed strength on the ringgit — which firmed to a 10-month high of 4.18 against the US dollar last Friday most probably due to the recent stronger-than-expected exports and forex reserves, higher global oil prices and weakness in the US currency — trading sentiment should show further improvement.
Immediate resistance for the index will be the recent high of 1,785, followed by more significant hurdle from the June 16 peak of 1,796. Immediate support will be the recent low of 1,756, while a confirmed breakdown below the July low of 1,751 would expedite correction to stronger support at 1,729, matching a key support in April.
Meanwhile, the oil and gas related counters may attract bargain hunters again after the recent recovery in global oil prices, with stocks like Bumi Armada, Dialog Group, Sapura Energy and Wah Seong likely to recover further on rotational interest.
Oil and gas related counters may attract bargain hunters again after the recent recovery in global oil prices, with stocks like Bumi Armada, Dialog Group, Sapura Energy and Wah Seong likely to recover further on rotational interest.