MOMENTUM MAY STAY INTACT
THE FTSE Bursa Malaysia KLCI (FBM KLCI) climbed to a two-month high in the middle of last week, helped by gains in banks and oil and gas (O&G) heavyweights sparked by economic recovery plays, and as oil price appreciated to US$70 per barrel.
Telco, construction, property and technology sectors also gained on rotation into economic recovery play as the broader market breadth and undertone remained positive, but stocks generally extended profit-taking mode ahead of the weekend.
Week-on-week, the FBM KLCI added 15.57 points, or 0.97 per cent, to 1,615.69, as gains in Petronas Chemicals Bhd (+52 sen), Tenaga Nasional Bhd (TNB, +46 sen), Axiata Group Bhd (+31 sen) and Public Bank Bhd (+10 sen) overcame falls on Supermax Corp Bhd (-42 sen), IHH Healthcare Bhd (-13 sen) and Sime Darby Plantation Bhd (-8.0 sen).
Average daily traded volume last week was lower at 9.62 billion shares but average daily value perked up to RM6.07 billion, compared to the 10.39 billion shares and RM5.84 billion average the previous week, indicating increased buying momentum on higher-priced blue chips and lower liners.
With no major news this week, investors are likely to take the cue from external developments, especially from the United States. The increase in the US 10-year Treasury yield to a 13-month high of 1.62 per cent last Friday and the 2.8 per cent rise in the US Producer Price Index for last month, should keep investors’ focus on the Federal Reserve (Fed) meeting on Wednesday.
Keeping to its twin mandate on inflation and maximising employment, the Fed is not expected to tweak its current target rate of between zero and 0.25 per cent but the market is expecting it to provide more clues in managing expectations, with inflation fears pushing up long-term bond yields.
The 10-year Treasury yield has been on the rise for seven weeks and further strong gains will have negative implications on foreign holdings in emerging markets as the reducing spread could drain liquidity.
The Fed chairman has indicated early this month that policymakers are comfortable with the rising yield, which is in line with the recovery in the broader economy. Maintaining this stance could trigger further rout in the US bond market, push up yield and lead to a stronger US dollar in anticipation of higher future interest rates.
While a stronger US dollar is bad for US exporters, it is positive for Malaysian exporters. On the other hand, a change of tune by the Fed to keep a lid on long-term borrowing costs by selling shortterm Treasury bills and buying long-term notes is an option to prevent its balance sheet from expanding further from the current US$7.6 trillion.
Maintain the view in previous reports that worries over rising bond yield in the US should not affect the attraction in our local equity market as the consensus calendar year 2021 corporate earnings growth of more than 22 per cent and the official economic growth forecast of between 6.5 and 7.5 per cent far exceed the growth in inflation, which is expected to be around 3.0 per cent this year versus -1.2 per cent last year.
This should lead to higher capital gain and dividend yield — the key factors that drive investment decisions — which should more than offset the impact of rising bond yields and attract more investors to switch to equities.
Technical outlook
The blue-chip benchmark index surged to a two-month high last Monday, with banks and O&G heavyweights leading gains fuelled by economic recovery plays.
The FBM KLCI ended up 11.69 points at 1,611.81, as losers edged gainers 647 to 621 on total turnover of 9.8 billion shares worth RM6.3 billion.
Core blue-chip utilities TNB and telcos propped the index higher on Tuesday, while construction and property stocks led gains on rotational economic recovery plays, as O&G stocks slipped on profit-taking after recent sharp gains.
The FBM KLCI climbed 12.97 points to settle at 1,624.78 as gainers led losers 634 to 551 on reduced turnover of 8.12 billion shares worth RM5.91 billion.
Blue chips extended gains on Wednesday to a two-month high, with telco, construction, property and technology sectors leading the rise.
The FBM KLCI added 15.05 points to close at 1,639.83 as gainers led losers 850 to 358 on robust trade totalling 11 billion shares worth RM7.2 billion.
Blue chips paused for profittaking consolidation on Thursday, as telcos and banks eased back from recent strong gains, while O&G and property-related stocks rose on economic recovery plays.
The FBM KLCI shed 10.42 points to settle at 1,629.41 but gainers led losers 759 to 435 on lower turnover of 9.53 billion shares worth RM5.44 billion.
On Friday, stocks extended profit-taking mode to consolidate recent strong gains, with construction, healthcare and banking stocks leading falls, but the broader market breadth and undertone stayed positive ahead of the weekend.
The index slid another 13.72 points to end at the day’s low of 1,615.69 as gainers overcame losers 631 to 530 on total trade of 9.64 billion shares worth RM5.51 billion.
Last week’s trading range for the blue-chip benchmark index was 34.72 points, compared to the 36.94-point range the previous week.
For the week, the FBM EMAS Index added 166.87 points, or 1.43 per cent, to 11,862.13, while the FBM Small Cap Index surged 636.60 points, or 3.94 per cent, to 16,806.82.
Technically, while the profittaking pullback on the FBM KLCI during the latter part of last week dragged down daily momentum indicators into hook-down mode, weekly momentum such as the weekly stochastics and 14-week RSI retained hook-ups, with a buy signal on weekly stochastics implying further bullish momentum ahead.
On trend indicators, the daily Moving Average Convergence Divergence (MACD) registered positive expansion above the midpoint, while the weekly MACD indicator’s signal line continued levelling off, suggesting further reduction in downward momentum.
The -DI and +DI lines on the 14day Directional Movement Index trend indicator have crossed over for a buy signal, with the levelling average directional index line pointing to a potential reversal of the current downtrend.
Conclusion
While daily technical momentum indicators on the FBM KLCI flashed hook downs due to last week’s late profit-taking correction, weekly momentum and trend indicators remained positive, suggesting the recent recovery above the 1,600-level should stay intact.
Moreover, the relatively mild profit-taking or selling momentum implies that it is a healthy consolidation needed to neutralise the overbought condition sparked by recent strong gains.
On the index, key chart supports cushioning the downside will be at 1,600, followed by the 100-day and 200-day moving averages at 1,589 and 1,562, respectively. Subsequent tougher hurdles to overcome profit-taking resistance are at 1,640, 1,660 and 1,680, with significant resistance found at the last December peak of 1,695.
As for stock picks, construction and utility blue chips like Gamuda Bhd, Axiata, DiGi.com and TNB should have more upside room near term, similarly for technology-related stocks such as Aemulus Holdings, Globetronics Technology Bhd and Inari Amerton Bhd.
O&G-related and property stocks should also perform on economic recovery play.
The 10-year Treasury yield has been on the rise for seven consecutive weeks and further strong gains will have negative implications on foreign holdings in emerging markets as the reducing spread could drain liquidity.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.