PROFIT-TAKING PRESSURE RISING

END-July window-dressing interest helped lift the local benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) for eight straight sessions to a near twomonth high last week before profit-taking emerged late in the week.

The profit-taking was due to worries over escalating trade tension between the United States and China after US President Donald Trump threatened to raise tariffs next month on US$200 billion (RM816.5 billion) of Chinese imports to 25 per cent from 10 per cent previously.

Week-on-week, the FBM KLCI rose 0.6 per cent to 1,780.09, as gains in MAHB (+70 sen), Hong Leong Bank (+36 sen) Tenaga Nasional (+32 sen) and Dialog Group (+24 sen) offset falls in Telekom Malaysia (-27 sen), Nestle (-20 sen) and IHH Healthcare (-15 sen).

Average daily traded volume and value last week fell to 2.23 billion shares worth RM2.14 billion, compared with 3.12 billion shares valued at RM2.46 billion in the previous week.

Trade war concerns should resurface strongly this week after China followed through with its own list of US items for additional tariff in retaliation to the US’ threat to levy higher import tariff on US$200 billion worth of China products.

The implementation that is expected to kick in as early as September should add up to a total of US$250 billion and US$110 billion from the US and China, respectively, after including the US$50 billion imposed last month. Price movements in global financial markets suggest the increase in import tariffs is yet to be factored in by investors.

Investors should remain defensive to embrace greater market volatility if the US and China do not meet eye-to-eye to resolve their grievances by then.

After this, China has limited option in pursuing a tit-for-tat action on trade alone as it has almost exhausted in imposing imports tariff on its total imports worth around US$130 billion from the US while the latter still has the option to double up the US$250 billion.

On the other hand, China’s trade data for July, which will be released on Wednesday, will be closely watched as well, especially after last week’s Caixin Purchasing Managers’ Index showed a decline in the manufacturing and services sectors for the month.

Consensus data points to a slight reduction in trade surplus to US$39.1billion from previous month’s US$41.6 billion as imports are expected to rise at a faster pace of 16.3 per cent yearon-year (YoY) versus export’s 10 per cent.

Being Malaysia’s largest trading partner, the data will provide crucial inputs to the country’s trade performance last month after June’s data, released last Friday, was lower than market expectations.

Malaysia’s trade surplus decreased 38.9 per cent YoY to RM6 billion in June as exports only rose by 7.6 per cent YoY due to contractions in resource-based exports while imports grew at a faster pace of 14.9 per cent YoY.

Technical Outlook

Bursa Malaysia shares ended softer in range-bound trading on Monday, with most investors sidelined and cautious ahead of key monetary policy meetings from Japan and the US.

The FBM KLCI rose 1.12 points to close near the day’s high at 1,770.26, off a low of 1,764.28, as losers beat gainers 535 to 332 with 2.19 billion shares worth RM2.03 billion changing hands.

The blue-chip index rallied late afternoon the subsequent day to close at the day’s high of 1,784.25, off an early low of 1,764.21, helped by strong gains in Tenaga Nasional and Hong Leong Financial Group, due to month-end windowdressing interest. Trading volume for the day improved to 2.71 billion shares worth RM3.05 billion, but losers edged gainers 479 to 438.

The index added 4.06 points to close at 1,788.31, off the opening low of 1,777.58, as gainers edged losers 449 to 433 on lower turnover of 2.33 billion shares worth RM2.05 billion.

Stocks slumped the following day after the US President threatened to raise tariffs on US$200 billion of China’s imports.

The FBM KLCI fell 10.18 points to close at 1,778.13, off the opening high of 1,788.31 and low of 1,775.85, as losers swarmed gainers 658 to 246 on total turnover of 2.09 billion shares worth RM1.98 billion.

The key index rose 1.96 points to close on Friday at 1,780.09, off an early high of 1,782.77 and low of 1,773.89, as gainers led losers 481 to 326 on the back of reduced turnover of 1.84 billion shares worth RM1.57 billion.

Last week, the FBM EMAS Index added 0.34 per cent to 12,600.48, but the FBM Small Cap Index shed 0.86 per cent to 14,742.20, as small-cap stocks retraced on profit-taking.

On momentum indicators, the daily slow stochastics for the FBM KLCI stays elevated in the overbought region and is hooking down, suggesting profit-taking correction potential this week.

On the other hand, the weekly indicator’s signal line has risen to the neutral zone after triggering a buy two weeks ago.

The 14-day Relative Strength Index (RSI) indicator has pulled back from the overbought region, while the positive stance on the 14-week RSI indicator remained intact.

On trend indicators, the daily Moving Average Convergence Divergence (MACD) signal line was beginning to level off, suggesting weakening upside momentum, but the weekly MACD indicator’s hook-up remained positive.

On the 14-day Directional Movement Index (DMI) indicator, the +DI and -DI lines continued to expand on a rising ADX line, sustaining its uptrend cue.

Conclusion Short-term overbought indicators, softening upward momentum and more cautious market undertone suggests profit-taking interest should remain strong this week.

Sector-wise, construction and oil and gas stocks, such as Gadang, Sunway Construction, Hibiscus and Velesto Energy, should still attract buyers on price dips, while semiconductor exporters like Globetronics, Inari Emerton, MPI and Unisem will need to absorb profit-taking interest before prices can move higher.

Short-term overbought indicators, softening upward momentum and more cautious market undertone suggests profittaking interest should remain strong this week.

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.