DOWNSIDE PRESSURE SET TO REMAIN

THE benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) stumbled to close at a two-month low last week, adversely affected by jittery market sentiment after strong United States economic data and surging Treasury yields raised fears that US interest rates would have room to rise next year.

Nonetheless, bargain hunters provided a bright spark on oil & gas stocks after the global Brent crude price surged to four-year highs of above US$80 per barrel.

For the week, the FBM KLCI shed 0.89 per cent to 1,777.15, as falls in Nestle (-50 sen), MAHB (-32 sen), Petronas Dagangan (-32 sen), MISC (-26 sen) and Axiata (-26 sen) overshadowed gains in Press Metal (+22 sen) and PPB Group (+6 sen).

Average daily traded volume and value last week increased to 2.37 billion shares worth RM2.02 billion, compared with 1.96 billion shares and RM2.07 billion, respectively, the previous week.

Market sentiment is expected to remain weak this week, pushing the benchmark FBMKLCI lower as investors await fresh leads from abroad and locally.

The much weaker than expected trade data for August, which was released last Friday noon, could have startled some investors as the 0.3 per cent yearon-year (y-o-y) contraction in exports and 11.2 per cent growth in imports versus forecast eight and 9.4 per cent, respectively, had led to a lower trade surplus of RM1.6 billion versus the forecast RM9 billion.

Apart from the high base effect, the contraction in exports y-o-y was due to the agriculture sector, which plunged by a double digit rate of 20.8 per cent y-o-y and slower growth of 1.1 per cent y-o-y in the manufacturing segment.

The timing of this data couldn’t be worse when the rupiah is facing the wrath of investors due to a twin deficit situation. With Malaysia being a net exporter of oil and gas, investors should not draw a parallel between Malaysia and Indonesia.

Malaysia had faced a y-o-y contraction in exports before as recent as February this year but rebounded a month later on higher electrical and electronics and crude oil exports.

A similar rebound could be on the cards due to stocking up ahead of Christmas and winter demand, respectively.

Apart from the possibility the current trade tension between the US and China could benefit Malaysia in the immediate-term as US importers source for alternate supplies, imports growth could soften as well in the coming months as retailers had been stocking up before the Sales and Services Tax kicked in on September 1. Weaker ringgit is another plus point for higher exports.

Technical Outlook

Bursa Malaysia shares closed mixed in range bound trade, with news of the US and Canada having reached a new deal to replace the North American Free Trade Agreement (Nafta) offset by China’s weaker manufacturing last month, while oil & gas related stocks surged on the back of rising global oil prices.

The index slipped 0.69 points to settle near 1,792.46, off an early high of 1,797.85, as losers edged gainers 455 to 427 on total turnover of 2.4 billion shares worth RM1.63 billion.

Blue chips ended higher the next day following news the US, Mexico and Canada have formed a new trade bloc called USMCA to replace Nafta. The benchmark rose 5.69 points to close at the day’s high of 1,798.15, off an early low of 1,791.67, but losers beat gainers 554 to 376 on active trade totalling three billion shares worth RM2.15 billion.

The local stock market traded sideways with slight downward bias on Wednesday with the FBM KLCI easing 1.85 points to close at 1,796.30, off an early high of 1,799.80 and low of 1,794.23, as losers beat gainers 472 to 336 on lower turnover of 2.34 billion shares worth RM1.99 billion.

Blue chips dipped again the following day as strong economic data and surging US Treasury yields raised fears that US interest rates have room to grow.

The index fell 6.19 points to settle at 1,790.11, off the early high of 1,798.24 and low of 1,787.88, as losers beat gainers 528 to 317 on slower trade totalling 2.06 billion shares worth RM2.45 billion.

Stocks slumped further on Friday, dragged lower by jittery external sentiment following a selloff in US bonds. The index sank 12.96 points to 1,777.15 as losers trashed gainers 639 to 265 on total trade of 2.05 billion shares worth RM1.88 billion.

Trading range for the blue-chip benchmark index stabilised at 23.28 points last week. For the week, the FBM-EMAS Index fell one per cent to 12,407.63, while the FBM-Small Cap Index dipped 1.2 per cent to 14,195.06.

The past two weeks’ index correction has brought down the daily slow stochastics indicator closer towards the oversold region, and confirmed the sell signal on the weekly indicator from the overbought zone.

The 14-day Relative Strength Index (RSI) indicator retreated to a weak reading of 39.50 as of last Friday, while the 14-week RSI indicator’s reading slipped below 50 to imply more weakness ahead.

On trend indicators, the daily Moving Average Convergence Divergence (MACD) signal line dipped just below the mid-point, while the weekly MACD indicator’s signal line turned south just at the mid-point, reinforcing the weak momentum indicators.

The 14-day Directional Movement Index (DMI) trend indicator turned bearish with the +DI and DI lines crossing for sell signal to suggest more weakness in trend.

Conclusion

With technical momentum and trend indicators turning south following the past two weeks’ correction, the FBM KLCI should be set for further decline this week.

Moreover geopolitical troubles in the European Union and surging US Treasury yields to fresh 7year highs, sparked by strong employment data which increased fears over inflation and potential for faster-than-expected interest rate hikes, should sideline investors and discourage bargain hunting.

With technical momentum and trend indicators turning south following the past two weeks’ correction, the

FBM KLCI should be set for further decline 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.