Consolidation with a bearish bias

REVIEW: Domestic policy has come into sharp focus as impending clarity over Malaysia’s fiscal status and future direction set investors on the edge of their seats.

Healthy US corporate results, however, did help to cast off fears that the Wall Street correction that began the previous week would pick up steam.

The earnings reports from some Wall Street blue chips – JPMorgan & Chase, Citigroup and Wells Fargo & Co – that trickled in the previous Friday kickstarted positive sentiment for investors.

There were healthy gains across all the US’ major indices and a substantial 2.3% rebound in the tech-heavy Nasdaq, which had slid into correction territory previously.

Oil prices were also on a tear as tensions appeared between the US and the Opec’s leading producer, Saudi Arabia, over the disappearance and suspected murder of a prominent Saudi political journalist.

This came to a halt by the midweek as it was revealed that US crude inventories were nearly triple what analysts had estimated. By yesterday’s end, WTI and Brent crude settled below US$70 and US$80 a barrel respectively.

The strength in oil prices offered some support to the ringgit although gains were capped by the seemingly invincible US economy lending weight to the US dollar.

On Bursa Malaysia, however, investors were tuned to issues of capital expenditure. An air of caution took over the marketplace as the mid-term review of the 11th Malaysia Plan on Thursday and Budget 2019, set to be tabled on Nov 2, crept closer.

On Monday, the local stock exchange descended two points to 1,728.74 as investors took to caution, given the swath of domestic and external data that was due to be released later in the week.

This caution continued over the course of Tuesday’s trading as trading volume showed a notable decline to about 1.53 billion shares, about 25% lower than in the preceding session.

Nevertheless, the FBM KLCI rose 8.1 points to 1,736.84, tracking a bounce on Asian markets as there was evidence the strong Wall Street earnings had halted a further Stateside correction.

True to expectations, the Dow Jones jumped 2.2% or over 500 points later that evening. Investors quickly piled into tech stocks, whose valuations had been struck down in the previous week’s decline.

Netflix led the march in the tech sector, jumping more than 11% as the report showed it added nearly seven million new subscribers to its global reach.

While Asian markets were jubilant on Wednesday, the local market reacted conservatively to the good news, preferring instead to wait for more guidance on government fiscal policy due out the next day. The FBM KLCI gained 3.75 points to 1,740.59.

The release of the minutes of the US Fed meeting sent Asian markets lower as regulators looked set on raising interest rates over the remainder of the year. China skidded to a four-year low with the Shanghai Composite Index losing 2.6%.

In Malaysia, losses were relatively mild with trading volume remaining muted even as the government released its mid-term report on the 11th Malaysia Plan. Investors reacted conservatively ahead of the budget in November and even as corporate earnings results started to trickle in, revealing lukewarm performances in the telco sector.

Some good news came to the construction sector in the form of the Light Rail Transit 3 project being revived, albeit at nearly half the cost. Project delivery partner MRCBGeorge Kent received a boost from the news. At market close, the index was down 2.58 points to 1,738.01.

Overnight, investors digested the details of the review of the 11th Malaysia Plan. Confirmation of a 15% cut on capital expenditure over the overall five-year plan was taken negatively, facilitating further foreign outflow. Yesterday, the FBM KLCI slid amid weakening regional markets, losing 5.87 to 1,732.14.

Investor attention was turned to MyEG and Datasonic, whose names were mentioned in connection to charges against former deputy prime minister Datuk Seri Ahmad Zahid Hamidi. Both counters hit limit down in the late-morning session and were suspended for trading in the afternoon.

Statistics: Week-on-week, the major index was up 1.4 points or 0.1% to 1,732.14. Total turnover for the week stood at 9.99 billion shares amounting to RM10.06bil compared with 11.87 billion shares worth RM10.12bil over the last trading week.

Outlook: The sluggishness of the market over the course of the week can be partly attributed to the lack of positive catalysts on the external front and mounting pressure on global equities.

However, domestic pressures have also contributed to the weakness, as evidenced by the selldown in the later half of the week.

The week’s closing near the 1,733 resistance, as was the case in the previous week, suggests investors remain undecided over the outlook and are holding on to the support/resistance.

The slow-stochastic sits on the overbought line of 80 points and is turning negative, indicating that it may be looking to neutralise. This weakness suggests the index will be moving within the 1,709 and 1,733 range over the immediate term.

The range-bound trading could be attributed to indecision keeping investors on the sidelines in the two weeks leading up to the tabling of Budget 2019.