Resilient but range-bound
REVIEW: Over the past week, the FBM Kuala Lumpur Composite Index ( FBM KLCI) traded within a range of 1,708 and 1,725 points.
Towards the latter half of the trading week, Bursa Malaysia began to see a more even distribution in market breadth from the previous week although decliners continued to outpace gainers.
On the regional front, fears of a pullback in markets were driven by the end of the tech rally and exacerbated by concerns of an ongoing US debate over the depth and scope of tax cuts.
Investors had made good gains over the course of the months-long rally and were inclined to lock in profits while awaiting fresh leads.
As the market opened on Monday, the FBM KLCI was in want of confidence. The index was pulled lower by poor performances in the three Sime Darby counters, closing the day 4.73 points lower at 1,713.13 points.
While strong earnings results, notably from the KLCI-linked Hong Leong companies, helped mitigate losses, investor sentiment remained cautious.
Foreign investors remained net buyers on the market as the ringgit strengthened to a 15-month high and showed gains of nearly 4% against the greenback since early November. Over the next three days, the currency, which showed signs of being overbought, sought some retracement.
Moving to Tuesday, Wall Street’s performance overnight did little to appreciate investor sentiment. On the Asian front, the pull back in tech stocks helped to confirm a correction.
However, the technical indicators had crossed into “buy” signals for the local index the previous day and it was poised for gains.
The FBM KLCI meandered in the 1,710 and 1,715-point range for much of the day before surging in late-afternoon trade to end 11.71 points in the black on Tuesday.
The lion’s share of the gains was contributed by Hong Leong Bank, which added 11% to its share price to give the index a six-point lift.
The fall in US tech stocks continued overnight as investors rotated into banking and retail stocks, seen to benefit from the US tax cuts. On Wednesday, Asian markets opened in a sea of red resulting in major indexes dropping below technical support levels.
The KLCI was also not spared profit-taking given the gains in the previous session, losing 6.51 points to 1,718.33 points.
The markets stabilised on Thursday, leading to rebounds, although others, such as Shanghai’s Composite Index, continued to see profit-taking.
The KLCI opened the day on a high note, above the 1,720 level but began to diminish over the course of the day. A three-point drop in the final minutes of trading brought the index nearly to parity with the previous session, up 0.72 points at 1,719.05 points.
On Friday, the domestic market opened on a strong note, climbing four points by midday. Investors had turned towards economic reports for investing direction moving forward. Released the same day, positive Chinese trade data sent an encouraging message that its growth story would continue.
However, the market lost some of the gains made in the earlier session and ended the day 2.20 points higher at 1,721.25 points.
Statistics: Week-on-week, the major index was little changed, up 3.39 points, or 0.2% to 1,721.25 points yesterday, versus 1,717.86 points on Nov 30.
Total turnover for the regular week stood at 8.859 billion shares amounting to RM12.051bil, compared with 7.87 billion units valued at RM12.704bil exhanging hands the prior week.
Outlook: Compared with the previous week, some strong corporate earnings have worked to rally positive energy behind the KLCI.
A measure of confidence seems to have returned to the Malaysian market as, in a broader vein, investors look to indications of economic growth in 2018 amid issues of monetary tightening in major markets.
The correction taking place in other regional markets could be seen as a factor for foreign investors’ return, as Malaysian equity had underperformed compared to regional peers and made for good bargains. Of course, the recent strength in the ringgit has helped matters, despite some technical pull back expected over the immediate term.
As prices corrected across the region this past week, Bursa appeared relatively resilient to the regional trend. However, there remains a lack of sufficient postive catalysts for investors to take the market convincingly higher.
Moving forward, there are indications the market could be range-bound even as it attempts to shrug off the ongoing weakness.
Looking at the short-term trend line, the KLCI remains under negative pressure despite the technical indicators painting a healthier landscape. While the daily moving average convergence/divergence histogram gave a “buy” signal on Monday, it remains poised in bear territory.
The negative crossings in the simple moving averages remain in place while a further negative crossing between the 100-day and 200-day SMAs, which looks set to take place in the event of a significant price pullback, will only worsen the bearish situation.
The initial resistance is pegged to the 1,730 level while a crossing of the 50-day simple moving average at 1,738 may indicate a push towards the crucial psychological level of 1,750. Crucial support lies at the 1,700 mark.