KLCI extends decline as markets catch cold

REVIEW: It seems that investors on the US markets may have finally lost their nerve.

Wall Street had been relatively resilient to the geopolitics and trade tensions rocking the world this year, but investors got a little weak in the knees early this corporate earnings season.

Amid slowing revenue growth as the effect of a worsening global trade environment begins to take root, it took just some weak profits to push them through the exit.

Overall sentiment has been weak as liquidity is expected to be sapped from US equities. The greenback hit a new high this week and, despite the protestations of President Donald Trump, the US Federal Reserve has maintained its hawkish tone.

On Wednesday night, a route in US markets saw the Nasdaq slip into correction territory, with losses of about 12% from its historical high in late August.

The broad-based fall in tech stocks had investors wondering if this marked the end of the tech boom. If so, there may be a long way to fall given its prolonged period in the sun.

The Dow Jones and S&P 500 also plummeted, accumulating losses of 8% and 9%, respectively, since their peak on Oct 3.

But what did this mean for Bursa Malaysia? At Thursday’s open, the immediate reaction was widespread bleeding on the local exchange. The semiconductor sector saw sharp declines in its component counters such as MPI, KESM, Elsoft and Vitrox.

Already experiencing a selloff over three straight days as a worsening external environment and pre-budget jitters shook investors, the FBM KLCI was poised to breach yet another technical support.

The FBM KLCI gapped down below the support to 1,679 and shaved as much as 20 points within the first 30 minutes of trade. The index managed to retrace losses by the afternoon session, ending 3.45 points lower at 1,686.59.

Earlier in the week, telcos in Malaysia had been ailing in light of the new regulations over broadband speeds and prices

and growing competition that were expected to shrink revenue. With heavyweights Axiata, Maxis and Digi playing a prominent role on the 30-stock weighted FBM KLCI, the index was put under heavy selling pressure.

Bank stocks were also experiencing downwards pressure, given fears over economic growth. All leading local banks posted negative results over the week.

The oil and gas sector and ringgit strength have also been on the backstep as oil prices turned to a declining trend.

Saudi Arabia’s Crown Prince Salman was quick to pledge his continued supply of crude to markets despite growing allegations over the killing of Jamal Khashoggi, suggesting he may be attempting to appease Trump, who has been demanding that oil prices be reduced.

All this added to the volatility that has plagued much of 2018. On Thursday night, Wall Street rebounded strongly as investors were apparently lured back by the promise of cheap valuations. The Nasdaq regained 3% to pull itself out of correction territory.

But the mixed mood continued as earnings results were varied – Tesla rallied, Alphabet tumbled and Intel rose on a strong forecast.

Yesterday, Asia sank into red due to negative results by Amazon and Alphabet, posted after market close and weighing on US futures. The FBM KLCI fell 3.53 points lower to 1,683.06.

Statistics: Week-on-week, the major index was down 49.08 points or 2.8% to 1,683.06. Total turnover for the week stood at 10.38 billion shares amounting to RM9.63bil compared with 9,9 billion shares worth RM10.06bil over the last trading week.

Outlook: The FBM KLCI has slid down another rung, breaching yet another support to land in a lower trading range. At current trading levels, it is at risk of erasing all the gains it had made in 2017.

However, despite Thursday’s strong selling pressure, triggered by the pullback on Wall Street and global equities, the index managed to retrace most of its losses by market close. This can be seen as a positive development, suggesting that there is still some buying strength in the market and investors capitalising on the swings.

The see-saw movement of global markets is testimony to the kind of volatility that is to be expected over the immediate trading future. For the remainder of the corporate earnings season, global markets are expected to be on high alert for any weakness in bellwhether counters.

The upcoming Budget 2019 next Friday will also be a crucial event with any unexpected developments certain to add to the volatility

The FBM KCI is now trading firmly below the 1,709 support-turned-resistance. It has managed to end the week above the immediate support of 1,680 although the 1,652 mark will serve as a stronger buffer for the counter in the event of a further selldown.

The slow-stochastic is returning from an oversold condition to 15 points, suggesting some potential near-term upsides. However, the trend is steadfastedly negative with the support in sight.