TRADING TREND
THE local stock market proved resilient last week, with the benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FMB KLCI) bouncing back led by banks on hopes for higher dividends after Bank Negara removed reserve fund requirements.
On the foreign front, the election victory of euro-friendly French President Macron and oil price and ringgit strength helped improve sentiment as weekly United States oil supplies fell and Saudi exports to Asia declined, but profit-taking interest resumed on the weaker earnings from US retailers which increased fears over the sustainability of US economic growth.
Week-on-week, the FBM KLCI rose 0.7 per cent to 1,775.87, helped by gains on BAT (+RM1.27), PPB Group (+25 sen), KLK (+22 sen), and financial institutions Hong Leong Bank (+20 sen), HLFG (+16 sen) and CIMB (+14 sen).
Average daily traded volume moderated to 3.37 billion shares with value eased to RM2.7 billion, compared with 3.7 billion shares worth RM2.98 billion in the previous week, as buying momentum continued to concentrate on the small cap and ACE Market sectors.
As widely expected, Bank Negara Malaysia maintained its Overnight Policy Rate at three per cent last Friday’s meeting, saying it is supportive of economic activities.
It is not surprising as the inflationary pressures that we have witnessed in recent months were not demand-pull and driven by increase in input prices, which was largely driven by a reversal in crude oil prices.
Malaysia will announce its first quarter gross domestic product (GDP) growth figure this Friday.
Actual growth is expected to fall much within consensus forecast of 4.6per cent year-on-year (YoY), after expanding 4.5 per cent YoY in the final quarter of last year, as the central bank has provided a clue in its monetary policy statement on Friday, saying growth momentum expected to strengthen in the first quarter and to be sustained for the rest of the year.
This was reflective in the recent Industrial Production data that showed overall production increased 4.3 per cent YoY in 1Q17 after posting growth of 5.0 per cent YoY in the prior quarter and 2.8 per cent in the first quarter 2016. Manufacturing sectors had been improving and was trending in tandem with the exports growth momentum during the same period.
Technical Outlook
Bursa Malaysia shares rose on Monday, led by banks on hopes for higher dividends after Bank Negara removed reserve funds requirement and the election victory of French president Macron over the weekend. The index gained 5.41 points to close at the day’s high of 1,768.15, off an early low of 1,763.29, as gainers led losers 546 to 388 on active trade totalling four billion shares worth RM2.42 billion.
The local market traded sideways the next day, as profit-taking interest rose amid uncertainties over the Bandar Malaysia project. The FBM KLCI eased 1.59 points to settle at 1,766.56, after moving within a narrow range bordering 1,770.43 and 1,765.14, as losers edged gainers 455 to 427 on slower turnover totalling 3.23 billion shares worth RM2.73 billion.
Blue chips rose on Thursday, with Petronas counters leading gains. The local bourse roe 8.83 points to end at 1,775.39, near the day’s low of 1,774.59 and off an early high of 1,780.49, as gainers led losers 560 to 379 on better turnover of 3.55 billion shares worth RM3.48billion.
The index closed up 0.48 points on Friday at 1,775.87, off an early high of 1,778.64 and low of 1,773.15, as losers edged gainers 516 to 424 on much slower turnover totalling 2.7 billion shares worth RM2.17billion.
Trading range for the blue-chip benchmark index last week shrank to 17.2 points, compared with the wide 30.56-point range in the previous week, as blue chips mostly went into sideways trade.
For the week, the FBM Emas Index added 0.96 per cent to 12,718.10, but the FBM Small Cap Index eased 0.17 per cent to 17,681.41.
Last week’s rebound encouraged the daily slow stochastic momentum indicator for the FBM KLCI to hook back up and trigger a buy signal in the upper zone, while the weekly indicator re-hooked upwards in overbought territory.
The 14-day Relative Strength Index (RSI) indicator also rehooked upwards to a bullish reading of 64.20 as of last Friday, while the 14-week RSI hooked up to a slightly overbought reading of 70.88.
Meantime, the daily Moving Average Convergence Divergence (MACD) trend indicator’s trigger line expanded positively to suggest renewed upside momentum, reinforced by the uptrend momentum on the weekly MACD indicator which remained intact.
As for the 14-day Directional Movement Index (DMI) trend indicator, the +DI and –DI lines showed bullish expansion on a mildly rising ADX line, signalling a reinstatement of the prior uptrend.
Conclusion
The return of bullish signals on most momentum and trend indicators on the FBM KLCI that we track following last week’s rebound suggests that the present profit-taking consolidation had run its course, thus paving the way for uptrend resumption.
Trading momentum should stay robust, especially on lower liners or small-cap construction and technology related counters on hopes for China plays.
Immediate upside hurdles for the benchmark stays at 1,782, the 76.4 per cent Fibonacci Retracement of the 1,867 to 1,503 downswing closely matching the recent two-year high of 1,784, followed by the 1,800 psychological level and 18 May 2015 high of 1,823. Immediate uptrend supports stays at the rising 30 and 50-day moving average levels, currently at 1,753 and 1,745, with better support from the lower Bollinger band at 1,728.
Chart-wise, investors should look to accumulate blue chips such as Axiata, Genting Malaysia, Sime Darby and Tenaga for longer-term upside, while bargain construction related stocks like Gadang, Kim Lun, Mudajaya and Sunway Construction given the positive outlook on the sector.