Rally pushes index above 1,700
REVIEW: Wednesday’s surge on Bursa Malaysia, two days ahead of Budget 2019 came as a welcome return to optimism in a week where trading was noticeably muted as more cautious investors sat by the sidelines.
Pulled higher by foreign buying ahead of the Budget and a positive turnaround on Wall Street, the FBM KLCI soared 23 points to return above the 1,700 level and rested on the resistance of 1,709.
Foreign funds notably returned on Wednesday with net buying of RM269mil in tandem with the previous night’s rebound on Wall Street. The reason for the buying interest was no doubt similar to what had triggered the US rally – bargains and oversold stocks.
There were some slight profit-taking on Thursday that took the FBM KLCI to 1,706.92. From a technical perspective, it puts the local benchmark index on slightly stronger footing heading into the year-end with the 1,700 psychological buffer to halt any subsequent pullback.
Markets rebound
A rush of buying in the afternoon session on Friday, coinciding with a rebound in global equities, started hours before the Budget. It also suggested optimism over the government’s fiscal plan.
The FBM KLCI rose 6.95 points to end the week at 1,713.87.
Despite the attention on domestic policy over the week, external factors continued to foster volatility in global markets, inevitably creating an equally difficult trading environment on Bursa Malaysia.
Conflicting signals, coupled with US corporate earnings which continue to come through, resulted in the sharp dip and quick rebound on Wall Street.
The big slump in Monday night trading in the US was triggered by a Bloomberg report saying Washington was considering implementing tariffs on the remaining US$257bil of Chinese imports to the US by December, resulting in a mad 900-point top-to-bottom swing in the Dow Jones Industrial Average.
The dread of a worsening trade conflict pulled the Dow 245 points or 1% lower.
The US markets rebounded the next day and erased its losses from the previous session over Trump’s willingness to negotiate with China, which took root over the subsequent trading sessions as a batch of strong corporate earnings came through.
US President Donald Trump is expected to meet Chinese President Xi Jinping at the G20 summit later this month for talks to resolve the trade dispute.
While Trump has maintained a hard stance over Chinese capitulation to his demands, he conceded that a coming together of minds would result in a “great deal” between the two nations.
Last Thursday, the two leaders expressed optimism after a phone conversation to resolve the conflict, just hours before the US accused two Chinese tech firms of stealing trade secrets from US semiconductor company Micron Technology.
Meanwhile, China lowered its reference rate to 6.9574 yuan to the US dollar, its lowest level in a decade, sparking fears of capital flight.
Positive momentum
Chinese regulators nonetheless stepped up efforts to soften the negative impact of a slowing economy, as they reportedly are implementing tax cuts on the automotive industry to boost one of the industries worsthit by the trade dispute.
Tracking Wall Street, Asian markets rebounded in the final days of October and leading into November, offering investors some reprieve after a bad month.
Statistics: Week-on-week, the major index was up 30.81 points or 1.8% to 1,713.87.
Total turnover for the week stood at 11.49 billion shares amounting to RM9.58bil compared with 10.38 billion shares worth RM9.63bil over the last trading week.
Outlook: The push above the 1,709 level in the hours leading to Budget 2019 suggested that investors are optimistic over the expansionary budget and declining fiscal deficit moving into next year.
Coupled with positive news on the US-China conflict, the risk appetite among foreign funds may be growing leading up to the G20 summit when Trump is scheduled to meet Xi.
The lead up to the Budget announcement on Friday, the market had rallied on Wall Street’s jump the previous night, briefly breaching 1,709 to a high of 1,717 before settling at 1,713.
The rally over the last week has served to build up the positive momentum on the market.
At present, the slow-stochastic has moved into overbought conditions at 87 points, which indicates little space to grow before some profit-taking ensues.
However, the daily moving average convergence/divergence line has crossed into a “buy” signal, which indicates a budding uptrend.
The 1,709 mark oncer again serves as a support, and there are indications that a pullback will take the index to that level. Abovehead, the 1,733 level serves as the immediate resistance.