Market falls short of a reversal
A retracement finally took place on Bursa Malaysia with the financial sector pushing ahead in mid-week trading although jitters over policy meetings by global leaders served to end the week on a sour note.
The rally on the local bourse on Wednesday and Thursday was long awaited as the benchmark index reclaimed some of the losses it had made since the elections in May.
This improvement in investor sentiment over local equity came amid heavy newsflow as the Malaysian government continues to “clean house” in pursuit of its policies.
On Monday, Asia’s opening was generally positive as it took its lead from the positive US jobs data that had been released the previous Friday. US unemployment fell to an 18-year low of 3.8% while wage growth was modest.
Some measure of strength seemed to have returned to Bursa Malaysia as the overall market breadth was positive with 477 advancing counters to 444 decliners. The decline at the close was slight, with the FBM KLCI losing 1.21 points to 1,755.17.
Over in the US, technology stocks, which had been a driver of growth in 2017, saw a resurgence in strength. Tech stocks made a move higher in the US overnight, with Apple rising to a historical high. Bolstered also by Microsoft and Amazon, the Nasdaq was lifted to a record close.
On Tuesday morning, Malaysian trade data painted a promising picture as exports rose 14% to RM84.2bil in April, the second highest monthly export value, underpinned by strong demand for manufactured goods.
However, this was not enough to elevate the market or bolster the ringgit. The FBM KLCI spent the majority of the session in the red. It moved back to the start by market close, where it ended little changed at only 0.03 points lower to 1,755.14.
On the more positive side, it seemed that some interest was returning to the construction sector. Certain construction stocks that were impacted by the proposed cancellation of the East Cost Rail Link rebounded after being oversold and on the prospect that the project may continue.
That night, Wall Street continued its tech-inspired rally with the Nasdaq rising to a second consecutive record close.
Having come near the support level of 1,750, and playing catch up to global markets that had moved ahead, the local bourse was poised for a midweek rally. Led by Public Bank and Telekom Malaysia, the index rose an impressive 21.99 points to 1,777.13 by market close.
Astro, which had been removed from the FBM KLCI 30-stock listing the previous week, saw some speculative buying on talk of a possible privatisation exercise. It rose 23 sen to RM1.83.
Meanwhile, the Government announced a major development as Bank Negara governor Tan Sri Muhammad Ibrahim had resigned from his post, even as the central bank faced controversy over a land purchase deal.
The same day, Telekom Malaysia announced that its CEO, Datuk Seri Shazalli Ramly, had also tendered his resignation.
The retracement continued on Thursday and the market drew nearer to the key resistance level of 1,800. Global financial stocks were on the rise as the European Central Bank had announced that it may soon end its stimulus programme, sending bond yields rising.
Malaysian banks were among the biggest benefactors with Maybank rising 28 sen to RM9.87 and CIMB adding 13 sen to RM6.34. The FBM KLCI closed up 8.68 points to 1,785.81.
On Friday, external developments once again came into sharp focus. The US Fed was widely expected to hike interest rates over the next week while US President Donald Trump was scheduled to meet major trade partners over import tariffs at the Group of Seven summit over the coming two days.
While banks were the major beneficiaries in the previous session, they led the declines over the course of the day. The buying momentum of the previous sessions gave way to profit taking, and the FBM KLCI slid 7.49 points to 1,778.32.
Statistics: On a Friday-to-Friday basis, the major index was up 21.94 points, or 1.2%, to 1,778.32 points. Total turnover for the trading week stood at 16.16 billion shares amounting to RM14.2bil compared to 13.28 billion shares worth RM18.8bil a week earlier.
Outlook: The uncertainties growing in the external environment remain an impetus for foreign selling on the local market, which had continued unabated over the week. A positive outlook for the US dollar and shaky prospects for global growth continue to facilitate outflows from the emerging markets.
On the domestic end, while there is still some fiscal uncertainty weighing on the ringgit, the country’s positive trade data and healthy oil prices lend support to a positive forecast.
Looking at the technicals, the slow-stochastic looks to be neutralising from overbought territory, suggesting that the index is expected to move lower in the days ahead.
The chart formation remains bearish as the index remains submerged below key simple moving averages. As the FBM KLCI ended above the resistance-turned-support of 1,775, a rally will now target the key level of 1,800. Pulling back further, the index is expected to fall through the immediate 1,775 support to approach the 1,760 mark.