FRENCH ELECTION
THE FTSE Bursa Malaysia KLCI (FBM KLCI) managed to close at a fresh 23month high last Friday, helped by renewed strength in banking stocks and oil price rebound on China’s strong first-quarter gross domestic product (GDP) growth, and as geopolitical tensions over North Korea eased following a failed missile launch.
The return of local institutional funds also managed to offset concerns over political uncertainties in Europe, geopolitical tensions in global hotspots and weaker United States corporate earnings.
For the week, the FBM KLCI recovered 25.06 points, or 1.45 per cent, to 1,756.05, with most of the gains contributed by banking stocks Maybank (+45 sen), AMBank (+32 sen), RHB Bank (+24 sen) and CIMB (+23 sen), and gaming stocks Genting Bhd (+49 sen) and Genting Malaysia (+35 sen).
Average daily traded volume and value were sharply reduced to 2.86 billion shares and 2.26 billion, compared with 3.78 billion shares and RM2.31 billion average, respectively, the previous week, as the severe slowdown of trading momentum in small-cap stocks was cushioned by bargainhunting interest on blue chips that supported the average daily traded value.
Banking stocks continued to aid the recovery in FBM KLCI as institutional and foreign funds that tracked the benchmark index piled in, aiming to scoop up a bargain in the index heavyweight sector after the continued rise in the consumer price index raised expectations for a hike in the Overnight Policy Rate in the second half of this year.
For the upside momentum to last, there should not be any untoward surprises from the French election. If Marine Le Pen wins the first round of voting we are in for a sharp fall in the global financial markets as her victory would rattle the core foundation of the European Union.
As historically election years are mostly positive for the Malaysian equity market, it could be an opportunity to buy-on-weakness, presuming market is right about an early election this year.
The recovery in GDP and corporate earnings, the award of many big-ticket infrastructure projects and improvement in commodity prices can be good enough reasons to do so apart from a potential recovery in ringgit, which has corrected more than 30 per cent since 2013.
Technical Outlook
Bursa Malaysia shares rebounded last Monday as local funds returned to nibble after the previous week’s sell-off.
The FBM KLCI rose 2.94 points to settle at 1,733.93, off an early low of 1,729.13 and high of 1,736.29, as gainers led losers 456 to 397 on moderate turnover of 2.88 billion shares worth RM1.78 billion. Blue chips extended rebound the next day. The FBM KLCI ended 6.67 points up at 1,740.60, off an early low of 1,735.31 and high of 1,741.51, as gainers led losers 552 to 327 on slower turnover of 2.79 billion shares worth RM2.45 billion.
The local market slipped back into profit-taking consolidation mode on Wednesday. The FBM KLCI shed 1.65 points to close at 1,738.95, off an early high of 1,741.47 and low of 1,735.73, as losers swarmed gainers 661 to 258 on cautious trade totalling 2.85 billion shares worth RM2.18 billion. Blue chips recovered on mild bargain-hunting interest the following day. The FBM KLCI rose 2.66 points to settle at 1,741.61, off an early low of 1,736.4 and high of 1,743.56, as gainers led losers 498 to 368 on moderate volume totalling 2.64 billion shares worth RM2.24 billion.
Blue chips extended gains on Friday, buoyed by strength in the US and regional markets. The index climbed 14.44 points to close at a fresh 23-month high of 1,756.05, off the opening low of 1,742.23, as gainers led losers 588 to 320 on more active trade totalling 3.12 billion shares worth RM2.65 billion.
Trading range for the blue-chip benchmark index last week expanded to 26.92 points, compared with the 13.57-point range the previous week, as keen buying interest in key banking stocks lifted the index to close at the highest since May 2015. For the week, the FBM Emas Index added 182.46 points, or 1.48 per cent, to 12,490.58, while the FBM Small Cap Index climbed 232.97 points, or 1.36 per cent, to 17,384.01, as small-cap stocks bounced back strongly from recent profit-taking corrections.
Last Friday’s strong rebound has lifted the daily slow stochastic momentum indicator for the FBM KLCI back into bullish territory, while the weekly indicator re-hooked upwards in the overbought zone. The 14-day Relative Strength Index (RSI) indicator climbed sharply from a fourmonth low to flash a bullish reading of 63.24 as of last Friday, while the 14-week RSI also rehooked upwards for a more positive reading of 68.40.
On trend indicators, the signal line of the daily Moving Average Convergence Divergence (MACD) has re-hooked up and poised to trigger a buy on further strength, while the uptrend momentum on the weekly MACD indicator has regained strength. The +DI and DI lines on the 14-day Directional Movement Index (DMI) trend indicator are expanding positively on an easing ADX line, which has yet to confirm a bullish reversal to uptrend mode.
Conclusion
Last Friday’s stronger-thanexpected recovery triggered bullish reversals on technical momentum indicators for the benchmark index, but buying momentum will need to improve significantly to confirm and sustain this recovery. In the meantime, improvement in overseas markets will be crucial to support further recovery ahead.
On the index, a breach above 1,758, the 23.6 per cent Fibonacci Retracement (FR) of the 1,310 to 1,896 upswing closely matching the recent high, will meet stronger resistance at 1,782, which is the 76.4 per cent FR of the 1,867 to 1,503 downswing, followed by 1,800 and the May 18 2015 high of 1,823. Key uptrend supports cushioning downside will be at 1,741 and 1,729, the respective 30 and 50-day moving average levels.