Bursa stays firm as trade talks fizzle out

Major developments cropped up over the past week on several fronts. On the domestic scene, the cancellation of the East Coast Rail Link (ECRL) project put an end to a potential turnaround in parts of the construction sector.

The nation’s Q2 GDP announced the previous Friday had revealed a slowing economy but, surprisingly, the news did not seem to hinder investors’ buying decisions this week.

On a global scale, the trade talks between the US and China and a brewing political scandal in the Trump administration captured the attention of international investors.

While uncertainty over Trump’s political future continues to build, the more pressing issue remained the negotiations taking place in Washington as a delegation from China tried to smoothen out its differences with its US counterparts.

The initial round of talks, held on Wednesday and Thursday, started prior to the US and China imposing fresh tariffs of US$16bil on each other’s imports. At 12.01am New York time on Thursday, the tariffs proceeded as planned.

The discussions were crucial to prevent a further escalation of the trade war as a US tariff on US$200bil of Chinese imports is due to be implemented next month.

This was the hopeful mood that kept market slightly afloat on Monday. There was an air of indecision with Chinese and Hong Kong markets moving higher but Japan’s Nikkei slipping slightly.

The yuan showed an improvement in sentiment as it moved to its highest in a week at 6.8450 against the US dollar.

The FBM KLCI counted among the more optimistic markets in the region. It gained 4.11 points to 1,787.58. Prime Minister Tun Dr Mahathir Mohamad was in the penultimate day of his visit to China, putting investors on edge over what announcements may come as he wrapped up his trip.

Wall Street also caught on to the optimism overnight and moved higher although Trump’s comments that China was manipulating its currency and that he did not “anticipate much” from the trade talks put a dent in the positive sentiment.

But any attempt to resolve the trade war was seen as a welcome event, and Asia picked up on the bullish momentum at Tuesday’s opening. The Shanghai Composite Index rose over 1% as investors hunted for cheap consumer and healthcare stocks following their recent pull back.

For the local construction sector, confirmation from Dr Mahathir that the ECRL and 662km Trans-Sabah Gas Pipeline projects would be shelved took some investors by surprise.

While interested companies HSS Engineers and Gabungan AQRS were up on high hopes in morning trade, both counters plunged in the late session following the announcement.

However, the FBM KLCI moved higher by 10.53 points to 1,798.11, on the verge of crossing a key level and resuming a bullish footing.

Bursa Malaysia was closed on Wednesday for Hari Raya Haji but Finance Minister Lim Guan Eng kept busy as he issued a statement on the previous government’s failure to refund US$16bil worth of excess income tax and real property tax gains paid by taxpayers.

While the arrears would be a further strain to the nation’s coffers, the market let the news slip past on Thursday as it focused on potential improvements in the global trade economy.

Most key Asian markets fell in the morning session ahead of US tariffs kicking in at noon. The event was largely ignored by South-East Asia, which benefited from a view that the sub-region may gain on the sidelines of pressure against China while financial and telco stocks propped up markets in the wake of the earnings sason.

By the noon session, most Asian markets were up as investors looked ahead to new developments.

At market close, the FBM KLCI was up 12.76 points to 1810.87.

By Friday, it had become apparent that the trade talks had all but fizzled. With little progress made towards a resolution, Asian markets slipped back and awaited comments by US Federal Reserve chairman Jerome Powell was expected to raise interest rates for a third time in September.

The ringgit weakened to November 2017 lows of 4.11. Oil prices improved as the US sanctions against Iran, starting November, loomed. The FBM KLCI retreated 2.28 points to 1,808.59.

Statistics: On a Friday-to-Friday basis, the major index was up 25.12 points, or 1.4%, to 1,808.59 points. Total turnover for the fourday trading week stood at 9.65 billion shares amounting to RM9.15bil compared with 10.9 billion shares worth RM10.67bil over the previous week.

Outlook: It is a promising development for the local stock index to rise above the 1,800 psychological level and the 200-day simple moving average although the Friday pullback suggests that the resistance continues to exert a hold on the index.

Thursday’s weekly high of 1,810 fell short of the recent high of 1,812 achieved on Aug 10, suggesting that buying interest remains lacking to take the counter to its next resistance of 1,825.

The slow-stochastic and daiy moving average converfence/divergence are moving in a bullish trajectory, with the latter on the verge of issuing a “buy” signal. On receding momentum, the index lies at risk of a pullback to the support at 1,775.