Volume thins out ahead of May 9
REVIEW: On the external front, rising inflation and bond yields in the US continued to plaque sentiment on equity markets even as the fast-approaching polling day on the domestic front sparked uncertainty and risk aversion.
For Bursa Malaysia, thin trading volumes and a bearish bias was the order of the day. Simultaneously, a reversal of fortunes for emerging markets on rising borrowing costs gave investors even more reason to bank elsewhere until new leads develop.
The week had started out on a positive note as the premiers of the two Koreas met over the weekend with open arms and smiles, promising an end to war on the peninsula. The geopolitical shift let out a feelgood vibe which helped improve regional market sentiment.
Furthermore, strong corporate earnings on Wall Street helped push up the major US indices, although their impact was somewhat offset by fears of future borrowing costs and trade relations between the US and China.
On Monday, the FBM KLCI continued to ascend the chart, adding 6.9 points to 1,870.34. Foreign investors contributed RM249.1mil in net buying to the day’s performance.
Trading volume remained subdued with only 1.71 billion shares worth RM1.83bil changing hands, a marginal improvement over the previous Friday’s turnover. Later that evening on Wall Street, a pullback suggested that the latest US corporate earnings figures were not enough to mollify investors given the tumultuous market conditions.
The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite Index fell between 0.6% and 0.8% each, snapping four consecutive days of gains. Market observers took solace in the fact that despite the pullback, April would be a positive month for Wall Street with an improvement over March.
On Tuesday, global markets including Bursa Malaysia were mostly closed for the Labour Day holiday. However, the US was open for business with mixed results for the major indices. There was a quarter percent jump on the S&P500, a 0.9% gain on the Nasdaq but a negative result for the Dow.
The strong gain on the tech-heavy Nasdaq was led by Apple Inc, which posted strong revenue and profit growth despite weakness in iPhone sales. This rounded out a positive quarter for FAANG stocks Facebook, Amazon, Alphabet and Netflix.
The US Federal Reserve also began their two-day monetary policy meeting on Tuesday, and investors turned their attention to new developments on interest rate hikes.
US Treasury yields continued to inch higher, followed closely by a rising dollar. Rising oil prices from worries over Iran sanctions had increased speculation that the Fed’s monetary policy meeting could forewarn of more interest rate hikes for the year.
At midweek, as the local market reopened for business, the benchmark FBM KLCI took a dive into negative territory, shaving off about 25 points in the early minutes of trade.
Stock selldown
While other Asian markets also succumbed to the selloff, the local market’s sharp decline seemed to indicate that investors had weighed the negative pressures on both the external and domestic fronts and begun selling down their stock one week ahead of the general election. By the late session, however, the index managed to retrace some losses and scrambled above the key support of 1,850, ending the day 18.34 points lower at 1,852.03.
On Thursday, the equities slump looked set to continue. The US Fed meeting had reiterated its belief that inflation near its target levels would be sustained, paving the way for a planned interest rate hike in June.
However, US-China trade relations looked set to deteriorate with the White House considering restrictions on certain Chinese companies selling telecom equipment to the US.
Asian markets were mostly in the red, as was Bursa Malaysia, although by market close it had fought back to just a quarter percent lower at 1,851.80. Yesterday, the immediate support finally gave way as the index dropped 9.97 points to 1,841.83.
Statistics: Over the past week, the major index was down 21.64 points, or 1.2%, to 1,841.83 yesterday, versus 1,863.47 on April 27. Total turnover for the trading week was 7.08 billion shares amounting to RM8.58bil, compared with 9.42 billion units valued at RM9.96bil changing hands over the previous trading week.
Outlook: That investors held on stubbornly above the key level of 1,850 over most of the week showed they were not quite ready to call in their chips. Yesterday’s pullback, however, suggested an accelerated selloff as polling day came just around the corner, although this may be reversed after May 9.
While turnover was tepid on the market, a smooth-running election would eventually yield renewed confidence in the economy, giving stocks a boost. The market is showing restraint due to caution, but a return to fundamental buying post-event should see the FBM KLCI push off the support line in a northwards trajectory. Observers have noted that it may be an ideal time to pick up oversold small-cap stocks.
The technical indicators suggest that this bear trend has taken root with the slow-stochastic resting on the 20-point oversold line and heading lower. At yesterday’s closing, the FBM KLCI remained just a notch above the round-figure support of 1,840, falling through which it will hit the next support at 1,825. To recover its bullish posture, the index has to climb above 1,850 and aim to breach the 50-day simple moving average at 1,858.