TRADING TO STAY LACKLUSTRE

THE FTSE Bursa Malaysia KLCI (FBM KLCI) hit its eight-month low last week amid concerns over the adverse impact of lockdowns in the Klang Valley and Selangor, rising inflation and high daily Covid-19 infections.

But bargain-hunting interest, encouraged by the strength of China’s strong trade numbers last month and rebound in rubber glove stocks, helped cushion the index.

For the week, the FBM KLCI gained 1.9 points, or 0.12 per cent to 1,522.48, as gains on Top Glove (+15 sen), Hartalega (+42 sen), CIMB (+4.0 sen), IHH Healthcare (+8.0 sen) and Telekom Malaysia (+12 sen) offset losses on Sime Darby Plantation (-24 sen), Maybank (-8.0 sen), Hong Leong Bank (-36 sen) and Mr DIY (-24 sen).

Average daily traded volume and value dwindled to 4.55 billion shares and RM2.86 billion, respectively, last week compared to the 5.47 billion shares and RM3.27 billion the previous week.

Lacklustre trading is expected during this holiday-shortened week as investors stay on the sidelines to gauge the impact of the good progress in Covid-19 vaccinations.

The improvement in vaccination rates and corresponding drop in new daily cases should attract investors into returning as the FBM KLCI is undervalued, trading at about 11 per cent discount to comparable peers’ calendar year 2022 average price-toearnings ratio of 15.5x.

Thus, any correction should be viewed as a good opportunity to accumulate undervalued blue chips, especially banking stocks, and recovery plays in the gaming and property sectors.

Commodity-related stocks in the oil and gas, plantation, telecommunication and technology sectors will also continue to benefit from the “new normal” while automotive and consumer stocks will benefit from the government stimulus packages and loose monetary policy.

Meanwhile, Organisation of the Petroleum Exporting Countries and its allies (Opec+) are expected to deliver positive news on output policy after a planned meeting.

Saudi Arabia and United Arab Emirates (UAE) are said to have reached a compromise over production quota that could increase crude oil supply, thus negating worries that the dispute could unravel the alliance and lead to a price war.

It seems that Saudi Arabia has agreed to UAE’s request to increase the latter’s baseline production to 3.65 million barrels per day (bpd) from April next year versus 3.168 million currently.

An agreement among Opec+ members could bring an additional two million bpd into the market by December and extend the pact until end of next year.

This is a positive development as it will provide price stability and better control over supply as demand recovers strongly postCovid-19 pandemic.

Malaysia will be announcing its Consumer Price Index for last month on Friday. Consensus is expecting it to cool off to 3.4 per cent after hitting 4.4 per cent in May. The data may not surprise as the low base effect wanes off.

In the United States, focus will be on the release of economic data such as retail sales, housing data, initial jobless claims and Purchasing Managers’ Index, apart from the second quarter corporate earnings season that is expected to register the strongest year-on-year growth in more than a decade.

Technical Outlook

Bursa Malaysia shares fell on Monday, with losses led by the healthcare, energy and construction sectors amid worries over the negative impact of lockdown extensions in the Klang Valley and Selangor.

The FBM KLCI shed 7.69 points to close at 1,512.89 as losers swarmed gainers 743 to 246 on total turnover of 4.28 billion shares worth RM2.35 billion.

Stocks traded sideways on Tuesday, as profit-taking and selling were offset by regional strength from China’s strong trade numbers for last month.

The FBM KLCI gained 6.67 points to settle at 1,519.56 as gainers edged losers 506 to 415 on muted trade totalling 4.54 billion shares worth RM2.53 billion.

Blue chips drifted lower on Wednesday, as worries over rising inflation, domestic politics and surging local Covid-19 cases continued to dampen investor sentiment. The FBM KLCI slid 7.24 points to close at 1,512.32 as losers beat gainers 542 to 411 on turnover of 4.38 billion shares worth RM2.99 billion.

Shares rose on Thursday, led by strong rebound on rubber glove stocks that lifted the healthcare sector index up by 4.6 per cent. The FBM KLCI climbed 8.5 points to close at 1,520.82 as gainers led losers 612 to 348 on improved turnover totalling 5.08 billion shares worth RM3.5 billion.

The index added 1.66 points to end Friday at 1,522.48, as gainers led losers 518 to 406 on total turnover of 4.48 billion worth RM2.94 billion.

Last week’s trading range for the blue-chip benchmark index shrank by more than half to 16.17 points, compared to the 35.26point range the previous week.

For the week, the FBM-EMAS Index gained 46.46 points, or 0.42 per cent, to 11,116.57, while the FBM-Small Cap Index rose 110.34 points, or 0.71 per cent to 15,561.30.

On technical momentum indicators for the FBM KLCI, the daily slow stochastics has recovered from oversold into neutral territory following last week’s sideways range trade, but the weekly stochastics continued its struggle in the oversold region.

The 14-day Relative Strength Index (RSI) indicator recovered into positive ground, but the 14week RSI retreated further, signalling underlying momentum remained weak.

As for trend indicators, the daily Moving Average Convergence Divergence (MACD) showed recovery potential with a pending buy signal, but the weekly MACD trigger line continued its journey downwards to confirm a bearish trend.

The -DI and +DI lines on the 14day Directional Movement Index trend indicator showed initial contraction on a surging average directional index line, which is still a downtrend confirmation.

Conclusion

Even as some technical indicators for the FBM KLCI, such as the daily stochastics and MACD’s pending buy signal imply recovery potential, most mediumterm trend indicators remained weak, while the weak buying momentum and market breadth suggest lacking follow-through strength on rebound attempts.

On the index, immediate support will be at 1,509, the 61.8 per cent Fibonacci Retracement (FR) of the 1,207 low to 1,695 peak at 1,509, followed by 1,500.

The 50%FR at 1,452, matching the low in November last year, will be the next key support to watch.

Immediate resistance will be at 1,552, with 1,580 and 1,600 as stronger resistance points.

On stock picks, core banking and rubber glove counters such as Public Bank, RHB Bank, Hartalega, Kossan Rubber, Supermax and Top Glove should continue to attract bargain hunters.

Thus, any correction should be viewed as a good opportunity to accumulate undervalued blue chips, especially banking stocks, and recovery plays in the gaming and property sectors.

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