INDEX LIKELY TO TRADE RANGE-BOUND
DESPITE oil and gas (O&G)-related stocks rising as global Brent crude prices surged to US$60 (RM253.8) per barrel, the highest in more than two years, and as investors welcomed the 2018 Budget measures, the local blue-chip benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) slipped lower on October monthend profit-taking.
This is as persistent foreign selling and Moody’s downgrade of Sime Darby’s issuer rating, and losses led by British American Tobacco (BAT) and O&G heavyweights dampened the overall market sentiment last week.
The FBM KLCI gave back 5.2 points, or 0.3 per cent, last week to 1,740.93, with losses on Petronas Dagangan Bhd (-46 sen), Petronas Gas Bhd (-20 sen), Genting Bhd (-9 sen) and RHB Bank Bhd (-5 sen) offsetting gains on MISC Bhd (+11 sen), BAT (+6 sen) and CIMB (+5 sen). Average daily traded volume and value last week was 2.96 billion shares worth RM2.26 billion, compared with 2.59 billion shares and RM2.15 billion average the previous week.
The FBM KLCI could remain in range-bound trading this week, if foreign selling continues to douse recovery in market sentiment.
Flow of foreign funds reversed in August after recording consecutive net inflows for the first seven months of this year that saw a cumulative net inflow of RM11.2 billion. It dropped to RM9.8 billion as at end of last month. The net outflow peaked at RM800 million in September before easing back last month to August’s RM300 million level.
Much of the outflow was triggered by the sharp fall in crude oil price that affected the ringgit, which weakened further with the start of monetary tightening process in the United States.
Investors would be watching closely news flows in the coming weeks ahead of the November 30 Organisation of Petroleum Exporting Countries meeting.
That aside, investors will be watching closely the development during the US President Donald Trump’s 11-day tour of Asia.
Locally, Bank Negara Malaysia is expected to stand pat on Overnight Policy Rate when it meets on Thursday, considering its monetary stance to remain accommodative and supportive of growth. While inflation rose to 4.3 per cent year-on-year (YoY) in September and averaged four per cent in the first nine months of this year, pricing pressure is expected to reduce in the next three months, adding to a fullyear inflation of 3.9 per cent.
The high base effect should contribute to below three per cent YoY inflation next year, but the central bank is expected to raise its policy rate by 25 basis points in the first half, to be inline with the monetary tightening process in the US, Europe and this region.
Technical Outlook
Bursa Malaysia shares rose last Monday. The FBM KLCI was up 2.22 points to close at 1,748.35, after oscillating between a high of 1,750.85 and a low of 1,746.46 as gainers led losers 518 to 402 on total turnover of 2.88 billion shares worth RM2.15 billion. Blue chips slipped lower on monthend profit-taking the next day.
The benchmark index ended 0.43 point down at 1,747.92, off a high of 1,751.26 and a low of 1,742.60 as gainers edged losers 458 to 449 on higher turnover of 3.15 billion shares worth RM2.78 billion.
Blue chips ended lower on Wednesday. The FBM KLCI shed 3.99 points to close at 1,743.93, off an early high of 1,748.80 and a low of 1,742.35 as losers beat gainers 504 to 368 on total trade of 3.06 billion shares worth RM2.30 billion. Key blue chips extended falls on foreign selling the subsequent day. The index eased 2.88 points to settle at 1,741.05, off an early high of 1,747.17 and a low of 1,739.80 as losers beat gainers 518 to 339 on total turnover of 2.9 billion shares worth RM2.08 billion.
The local market continued trending sideways with mild downward bias ahead of the weekend. The index ended flat at 1,740.93 on Friday after ranging between an opening high of 1,744.79 and low of 1,739.60 as losers beat gainers 483 to 337 on turnover totalling 2.8 billion shares worth RM1.97 billion.
The trading range for the bluechip benchmark index last week was 11.66 points, compared with the 17.83-point range the previous week as blue chips suffered from mild foreign-selling pressure. For the week, however, the FBM Emas Index added 11.55 points, or 0.09 per cent, to close at 12,563.16, while the FBM Small Cap Index gained 116.77 points, or 0.67 per cent, to 17,435.21 as small-cap stocks continued to highlight active rotational buying interest.
A sell signal registered on the daily slow stochastics indicator for the FBM KLCI following last week’s mild correction, while the weekly stochastics’ signal line inched lower into oversold territory. The 14-day Relative Strength Index (RSI) indicator dipped back to a softer reading of 37.67, while the 14-week RSI hooked down to a slightly weaker reading of 43.92 to mirror the softening momentum on the daily indicator.
The Moving Average Convergence/Divergence (MACD) was showing weaker upside momentum while the weekly MACD dipped lower to reinforce the bearish daily trend reading. In the meantime, the +DI and –DI lines on the 14-day Directional Movement Index trend indicator stayed apart bearishly to suggest a persistent downtrend.
Conclusion
Given weaker readings on technical momentum and trend indicators for the local benchmark following last week’s mild correction, highlighted by a fresh sell signal on the daily slow stochastics, key index heavyweights should stay under pressure this week as long as foreign selling interest persists. However, O&Grelated stocks might attract more buying interest, given the resilient global crude oil price trend.
Immediate overhead resistance for the index stays at the prior October 2 pivot low of 1,750, next will be 1,766, the 100-day moving average, while tough hurdle is seen from the August 8 peak of 1,782, followed by the double-top peak of 1,793 and 1,796. On the downside, stronger support below the recent pivot low of 1,733 will be the April low of 1,729, and subsequently 1,700.
The FBM KLCI could remain in range-bound trading this week if foreign selling continues to douse recovery in market sentiment.