BUYING INTEREST MAY CONTINUE

THE FTSE Bursa Malaysia KLCI (FBM KLCI) whipsawed within a 20-point trading range last week as prior gains encouraged profittaking, sparked by a surge in United States bond yields and a sharp drop in oil price on concerns over an increase in US production and stocks.

This was amid fading optimism following worries over potential hiccups in vaccination rollouts and fresh lockdowns in Europe due to a surge in Covid-19 infections.

Week-on-week, the FBM KLCI added 10.50 points, or 0.65 per cent, to 1,626.19 as gains in Genting Bhd (+44 sen), Telekom Malaysia Bhd (+29 sen), IHH Healthcare Bhd (+28 sen) and Maxis Bhd (+22 sen) overcame falls on Press Metal Bhd (-24 sen), Tenaga Nasional Bhd (-24 sen) and Dialog Group Bhd (-10 sen).

Average daily traded volume and value last week stood at 10.6 billion shares worth RM5.25 billion, compared to the 9.62 billion shares worth RM6.07 billion the previous week, reflecting stronger retail vis-à-vis institutional participation.

Buying interest should be sustained this week with selective nibbling in undervalued blue chip, gloves and oil and gas (O&G) stocks.

With a third wave of the Covid19 pandemic spreading across Europe, there is a high likelihood for momentum trades in glove stocks that should provide some upside bias for the benchmark index this week. However, there is no doubt about reservation of some investors to go long on glove stocks.

The abnormal average selling prices (ASPs) and volumes are expected to come off with the progress in vaccinations and added strain from new glove supplies in future.

The strong growth in ASPs and volume has tapered off since Covid-19 vaccination started on a global scale earlier this year and prices are expected to drop on a month-on-month basis.

But while blended prices should see sustained weakness from the third quarter onwards, glove players are confident that prices will not normalise to preCovid 19 levels in the next three years.

With key glove players’ priceto-earnings ratio ranging from a very low single digit this year to mid-teens in 2023 and dividend yield dropping to around midsingle digit in 2023, these stocks still appear palatable compared to those with similar market capitalisation that trade at much higher valuation multiple with lower dividend yield.

Technical outlook

Bursa Malaysia shares rose last Monday, with energy and utility stocks leading gains as the global oil price stayed resilient near US$70 per barrel while continued profit-taking interest weighed on heavyweight technology and semiconductor-related counters.

The FBM KLCI gained 5.23 points to close at 1,620.92, as gainers edged losers 611 to 586 on robust trade totalling 10.29 billion shares worth RM5.22 billion.

Stocks dipped on profit-taking on Tuesday, led by O&G-related shares, after Brent crude dipped to the US$68 per barrel level on concerns over increase in US production and stockpile, and demand worries after Germany, France and Italy suspended the AstraZeneca vaccine over fears of serious side effects.

However, the FBM KLCI still gained 3.04 points to settle at 1,623.96, with losers beating gainers 724 to 457 on active turnover totalling 11.88 billion shares worth RM5.56 billion.

The stock market rose on Wednesday as bargain hunters returned to the transport, logistics, healthcare and telco sectors, as banks slipped on profit-taking due to overbought conditions.

The FBM KLCI added one point to end at 1,624.97, as gainers led losers 625 to 513 on turnover of 12.67 billion shares worth RM4.77 billion.

Lower liners and small-cap stocks turned lower on Thursday due to profit-taking but gaming and core semiconductor or technology-related stocks rose on active rotational play, with the technology sector index up the most with a robust 2.5 per cent gain.

The FBM KLCI rose three points to settle at 1,627.99, as gainers edged losers 634 to 615 on turnover totalling 9.16 billion shares worth RM4.89 billion.

Stocks extended profit-taking correction into the weekend, with energy, utility and property sectors leading the fall.

On Friday, the index shed 1.8 points to end the week at 1,626.19, as losers swarmed gainers 787 to 347 on total turnover of 9.04 billion shares worth RM5.79 billion.

Last week’s trading range for the index was reduced to 19.99 points, compared to the 34.72point range the previous week, as core blue chips eased into profittaking mode.

For the week, the FBM EMAS Index added 61.08 points, or 0.51 per cent, to 11,923.21, while the FBM Small Cap Index inched higher by 26.62 points, or 0.16 per cent, to 16,833.44.

On the technical momentum, daily indicators stayed neutral, but weekly momentum such as the weekly stochastics and 14week RSI retained their upward traction, signalling bullish momentum is intact.

On trend indicators, the daily Moving Average Convergence Divergence (MACD) levelled just above the mid-point, while the weekly MACD indicator’s signal line was inclining, implying an increase in uptrend momentum.

The -DI and +DI lines on the 14day Directional Movement Index trend indicator remained positive following the previous week’s buy signal, but the levelling average directional index line suggests the present trend has yet to build momentum.

Conclusion

Short-term technical momentum indicators on the FBM KLCI have turned neutral following last week’s profit-taking pullback, while the longer-term trend indicators remain positive but have yet to strengthen further to reinforce the uptrend.

Sector-wise, healthcare, specifically key rubber glove makers such as Top Glove Corp, Hartalega Holdings Bhd, Supermax Corp Bhd, Kossan Rubber Industries Bhd and Comfort Gloves Bhd are close to ending their recent basebuilding phases and poised for recovery, given the strong demand outlook and resurgent Covid-19 infections in Europe and Brazil, which have also encouraged profit-taking on recent strong reopening plays like banking, gaming, construction and property.

On index levels, immediate upside hurdles to cross for uptrend reinforcement will be the recent intra-day highs of 1,642 and 1,653, with subsequent tougher hurdles seen at 1,660 and 1,680, and significant resistance found at the last December peak of 1,695.

Key chart supports cushioning downside will be last Friday’s low of 1,615, followed by the 50-day and 100-day moving averages (MA) at 1,598 and 1,595, respectively. Crucial support will be from the 200-day MA at 1,567.

As for this week’s picks, banking, gaming and O&G-related stocks such as AMMB Holdings Bhd, CIMB Group Holdings Bhd, Maybank, RHB Bank Bhd, Genting Bhd, Genting Malaysia Bhd, Bumi Armada Bhd and Dagang Nexchange Bhd should stage profit-taking corrections before bargain-hunters return.

While blended prices should see sustained weakness from the third quarter onwards, glove players are confident that prices will not normalise to pre-Covid 19 levels in the next three years.