‘RESPITE IN SIGHT’
THE stock market may see some relief in the short term as indicators hint technical rebound in the works. Strong macroeconomic fundamentals will provide a shelter and buying opportunities, say analysts.
THE stock market may see some respite in the short term, according to a relative strength index (RSI) indicator. The FTSE Bursa Malaysia KLCI Index’s RSI has slipped below 30 since June 19, indicating an oversold or undervalued condition that may signal a trend change or corrective price reversal to the upside.
RSI readings of 70 or above, on the other hand, indicate that a security is becoming overbought or overvalued.
The key benchmark index has lost more than 11 per cent since its year-to-date high on April 19 and more than six per cent since June 7.
According to a Bloomberg report, a respite may be close for the battered Asian stock markets of China, Malaysia, Thailand, Singapore and the Philippines.
“The past two weeks have been ugly for Asian stock markets, but the selloff might have gone too far,” it said.
Analysts still kept a conservative outlook for a few months, with the stock market expected to continue falling back into losses before heading for a long-term sustained recovery, they added.
MIDF Research head Redza Rahman said the effects of external concerns — trade tensions between the United States and China, potential rate hikes by the US and other central banks as well as the strengthening of the US dollar — still linger.
“This will result in hot money flowing out, suppressing Malaysian companies’ share prices even further.
“The stronger US dollar will also have an adverse impact on the return of investments from emerging markets, which will impact foreign investment decisions,” he told NST Business.
Redza said macroeconomic fundamentals are still strong, which will provide a shelter and buying opportunities, especially for stocks that have high domestically-sourced revenue.
He said for example, British American Tobacco Malaysia Bhd, Fraser & Neave Holdings Bhd, Dialog Group Bhd, Top Glove Corp Bhd and Eco World Group Development Bhd have all seen an increase in market capitalisation since March due to strengths of their future earnings, strong fundamentals and ability to weather the challenging operating environment.
“However, overall, it will take time for the dust to settle.”
Stock market analyst Nazarry Rosli said indicators hinted at some respite in the stock market.
“The key benchmark index is now trading below the psychological level of 1,700 points and below (simple moving average) SMA50 and SMA200, so there might be some technical rebound.”
He expects Bursa Malaysia to head for a sustained recovery in the next three to four months.