PROFIT-TAKING, DOWNSIDE PRESSURE LIKELY TO PERSIST
THE l ocal blue-chip benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) spiked to a two-week high last week after Bank Negara Malaysia left interest rates unchanged on signs of economic recovery while the broader market remained vibrant amid strong retail participation ahead of the Malaysia Day holiday.
However, banks led subsequent falls amid concerns over the approaching end of a six-month loan moratorium, and profit-taking on rubber glove stocks despite Top Glove Corp Bhd’s record-breaking fourth-quarter profits that beat market expectations.
Week-on-week, the FBM KLCI added 1.78 points, or 0.12 per cent, to 1,506.63, as gains on Hartalega Holdings Bhd (+RM1.72), Top Glove (+22 sen), Dialog Group Bhd (+20 sen) and Telekom Malaysia Bhd (+15 sen) offset losses on Tenaga Nasional Bhd (-52 sen), Malayan Banking Bhd (-24 sen) and IHH Healthcare (-17 sen). Average daily traded volume and value last week remained buoyant at 8.2 billion shares worth RM5.8 billion, compared with the 7.95 billion shares and RM4.97 billion average the previous week, as trading momentum in small caps, ACE Market and penny stocks persisted amid strong rotational plays.
Two key events this week could sustain the downside pressure on the FBM KLCI as investors liquidate and remain firmly on the sidelines. First is the FTSE Russell’s review of Malaysia’s continued inclusion in its World Government Bond Index on Thursday and second is the outcome of the Sabah state election that will be held this Saturday.
Worries of being excluded from this index remain despite Russell’s decision to maintain it in the last two reviews. This was reflected in waning demand for the government’s conventional bond auctions in August and September as investors believe bond yields have seen their lows for the year after reading into Bank Negara’s decision to maintain its policy rate in a recent meeting.
Still, the 10-year Malaysian Government Securities offer an attractive yield of 2.72 per cent as at last Friday versus the 10-year United States Treasury yield of 0.69 per cent. Besides, with the
August Consumer Price Index (consensus forecast -1.3 per cent) due on Wednesday pointing to sustained deflationary pressure for the sixth consecutive month and recurring Covid-19 cases globally adding to the uncertainty, there is still room for further monetary policy easing if economic conditions warrant it.
A potential exclusion has no direct impact on equities but any selldown in the bond market will weaken the ringgit and affect it indirectly. With sustained foreign selling in the equity market, expectations of prolonged weakness in the local currency will not help in wooing them back when political uncertainty is already acting as a major dampener.
The outcome of state polls will increase the shroud of uncertainty as news media have highlighted that the prime minister has hinted about an early 15th General Election if Gabungan Rakyat Sabah wins the election. With 447 candidates vying for 73 seats in many multi-cornered fights, winning a clear majority for any single party is tough and can lead to party hopping later.
No disruptions in the state’s status quo could exert more political pressure on the losing parties and may destabilise their prevailing alliances at various levels. As such, investors could switch their attention to defensive sectors and dividend-yielding stocks, pending the results of the state polls.
Technical outlook
Trading range for the blue-chip benchmark index last week was reduced to 37.95 points compared with the 44.66-point range the previous week, as most blue chips stayed in range-trading mode. For the week, the FBM EMAS Index added 86.14 points, or 0.8 per cent, to 10,837.62, while the FBM Small Cap Index rose 256.63 points or 1.98 per cent to 13,193.40.
As for technical momentum signals, the daily slow stochastics on the FBM KLCI has risen to the neutral region following last week’s mild rebound, but the weekly indicator continued to extend further south. The 14-day Relative Strength Index indicator hooked back down due to last week’s late profit-taking pullback, while the 14-week RSI eased further below the neutral line to signal weakening momentum.
On trend indicators, the daily Moving Average Convergence Divergence (MACD) signal line registered an unconvincing crossover in bearish territory, while the weekly MACD indicator registered deterioration following the previous week’s sell signal. On the 14-day Directional Movement Index trend indicator, the +DI and -DI lines contracted on a falling ADX line, suggesting the prior down-trend is easing off.
Conclusion
Last week’s failed rebound attempt on the FBM KLCI and the recent weaker buying momentum trend given the approaching end of a six-month loan moratorium implied that profit-taking and selling activities should persist as retailers looked to reduce commitments ahead of the deadline.
Trend indicators are softening, suggesting further share price weakness due to profit-taking unless more domestic market catalysts emerge.
On the index, crucial support remains the 200-day moving average now at 1,503, with next key supports from the recent low of 1,474, the 38.2 per cent FR of the 1,207 to 1,618 upswing at 1,461, and then 1,450. Immediate upside hurdles stay at the 30-day and 50-day moving averages at 1,543 and 1,562, respectively.
As for stock picks, construction, property and plantation related counters like Gamuda Bhd, Gadang Holdings Bhd, Malaysian Resources Corporation Bhd, UEM Sunrise Bhd and FGV Holdings Bhd should attract bargain hunters looking for rotation into economic recovery play.
Trend indicators are softening, suggesting further share price weakness due to profit-taking unless more domestic market catalysts emerge.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.