KLCI closes above 1,400, remains in uncertainty
REVIEW: The positive surprise of Malaysia’s first quarter gross domestic product, which eked out a 0.7% expansion, sent the domestic bourse on a midweek rally that coincided with daily trading volume hitting a historic high.
The benchmark FBM KLCI reached above 1,400 points for a third time in recent weeks on Thursday, lifting investor spirits that the strong rebound seen in the March and April period was set to continue.
However, the positive breach would prove fleeting as investors quickly locked in profits, sending the FBM KLCI below the crucial resistance. Another attempt was made yesterday, and the index successfully closed 6.19 points higher at 1,403.44.
However, the crossing remains tentative and it remains to be seen if the level can be held amid fears of an impending correction.
Investors are trading against a bearish backdrop given the weakness of the global economy and caution by Bank Negara governor that the economy would undergo a deep contraction in the second quarter.
Looking at the performance of major markets, Wall Street experienced a losing streak, spurred on by Fed chairman Jerome Powell’s revelation that more stimulus would be needed to prop up the US economy despite the mammoth-size packages that have been announced.
China’s main index has taken on a sideways movement below the 100- and 200-day simple moving averages (SMA) while investors take stock of the recent gains. News of a possible “second wave” of the coronavirus after a new cluster of infections was detected in Wuhan put the rally on pause, as investors await medical experts to ascertain the findings.
Meanwhile, trade protectionism remains on the agenda despite the ongoing Covid-19 crisis. Rhetoric between the US and China have escalated as finger-pointing continued over the spread of the pandemic. As a result, the Phase One trade deal struck between the two nations now looks in jeopardy unless tensions de-escalate.
Others have jumped on the bandwagon. As Washington criticised the Chinese handling of the coronavirus situation, Australia entered the melee only to have China slap sanctions on its beef and barley exports.
In crude oil markets, investors are staying close to crucial support levels in a state of heightened caution amid the volatility. Over the past week, Brent was seen moving along the 50-day SMA below the Us$30-a-barrel mark.
With few catalysts over the horizon to sustain the forward push, the FBM KLCI may be trapped in consolidation mode for the present, pending the release of more crucial economic data.
On the assumption that there will no happy news on both the global and domestic economies in the near term, there is a growing likelihood that the sideways trading will give way to a correction.
Statistics: The major index ended the week 21.13 points, or 1.5%, higher over the previous Friday at 1,403.44. Total turnover for the four-day trading week stood at 32.2 billion shares amounting to Rm16.74bil compared with 21.8 billion shares worth Rm10.71bil in the previous similarly holiday-shortened week.
Outlook: While the FBM KLCI ended yesterday higher than 1,400, its hold remains tentative. There have been signs that investors lack the conviction to sustain the market rally over the longer term, given the quick onset of profit-taking.
There is a dichotomy between the rally seen on Bursa Malaysia and the state of the world’s economies that suggests the current optimism lacks sufficient grounding. Foreign investors continued to be net sellers of Malaysian equity over the past week, with local institutions and retail investors buying up the market.
Short of crossing above the 1,430 resistance, the FBM KLCI remains trapped within a consolidation channel while a bearish bias continues to mount. Higher resistance levels are pegged to 1,430 and 1,460 while support is found at 1,370 and 1,340 points.