NEED FOR STRONGER BUY­ING SUP­PORT

New Straits Times - - BUSINESS -

THE ini­tial for­eign sell­ing on Bursa Malaysia af­ter a long week­end hol­i­day break last week, on con­cerns over a wors­en­ing United States-China trade war, was sub­se­quently off­set by a strong two-day re­bound as re­duced trade ten­sions, re­cov­ery in oil and gas-re­lated stocks and Mor­gan Stan­ley’s rat­ing up­grade on Malaysia helped re­verse neg­a­tive sen­ti­ment.

Week-on-week, the lo­cal bench­mark FTSE Bursa Malaysia KLCI (FBM KLCI) rose 4.59 points, or 0.26 per cent to 1,803.76, as gains in CIMB (+31 sen), Petronas Gas (+18 sen) and DiGi.com (+ 17sen) helped off­set losses in Har­talega (-28 sen), IHH Health­care (- 22 sen) and Hong Leong Bank (- 20 sen).

Av­er­age daily traded vol­ume last week re­cov­ered marginally to 2.43 bil­lion shares worth RM2.62 bil­lion, com­pared with 2.33 bil­lion shares worth RM2.03 bil­lion in the pre­vi­ous week.

The FBM KLCI re­cov­ered from the un­ex­pected volatil­ity on Wed­nes­day to end the week on pos­i­tive note. This was in line with im­proved re­gional mar­ket sen­ti­ment af­ter the US an­nounced an­other round of talks with China to re­solve trade con­flicts.

How­ever, hardly a day af­ter that, it ap­peared that US Pres­i­dent Don­ald Trump has in­structed his aides to pro­ceed with tar­iffs on about US$200 bil­lion more of Chi­nese prod­ucts. If this is true, mar­ket volatil­ity should pre­vail. Un­less it can strike a favourable deal with China, the US is likely to pro­long this mat­ter un­til its mid-term elec­tions in Novem­ber is over, as any at­tempts to rush through a deal that ap­pears un­favourable could back­fire on the Repub­li­can Party.

The odds are high for trade ten­sions to last as China’s trade sur­plus with the US widened to a record high of US$31.05 bil­lion last month.

Malaysian ex­porters, es­pe­cially those in the tech­nol­ogy sec­tor, can be in the lime­light again if the US goes ahead with the US$200 bil­lion tar­iff plan. Tech­nol­ogy stocks have en­joyed steady in­creases since April.

A weak ring­git, which can ap­proach 4.20 against the US dol­lar soon, is an­other cat­a­lyst. Tech­nol­ogy, palm oil and glove play­ers should be the main ben­e­fi­cia­ries in the short term, but the shine should wane in the long run as trade war is a “lose-lose” game that will lead to higher in­fla­tion and de­mand de­struc­tion.

A weak ring­git, a stronger out­look for crude oil prices and the on­set of El Nino could be favourable for plan­ta­tions stocks. As the fourth quar­ter usu­ally re­flects a sea­sonal re­cov­ery in crude palm oil prices, th­ese stocks could wit­ness a re-rat­ing in Oc­to­ber.

This week’s key eco­nomic data in the US, such as hous­ing starts, build­ing per­mits and Pur­chas­ing Man­agers’ In­dex, are likely to in­di­cate sus­tained strength in its econ­omy. This will act as a pre­lude to the Fed­eral Re­serve’s rate hike decision (po­ten­tially by 25 ba­sis points) later this month and pos­si­bly fur­ther weak­ness in emerg­ing mar­ket cur­ren­cies.

Tech­ni­cal Out­look

Bursa Malaysia shares slumped on Wed­nes­day af­ter a four-day week­end hol­i­day break, as for­eign sell­ing re­sumed on con­cerns over a wors­en­ing US-China trade war and con­ta­gion from tum­bling emerg­ing mar­ket cur­ren­cies. The FBM KLCI fell 13.92 points to close at 1,785.25, off an early high of 1,822.68 and low of 1,780.91, as losers swarmed gain­ers 896 to 166 on to­tal turnover of 2.23 bil­lion shares worth RM2.8 bil­lion.

Shares re­cov­ered the next day as hopes for re­newed trade talks be­tween the world’s two largest economies helped lessen neg­a­tive sen­ti­ment. The FBM KLCI gained 7.35 points to close near ses­sion highs of 1,792.60, off an early low of 1,777.45, as gain­ers edged losers 478 to 405 on im­proved turnover of 2.38 bil­lion shares worth RM2.57 bil­lion.

Stocks bounced back strongly on Fri­day, boosted by re­duced US-China trade ten­sions, re­bound in oil and gas-re­lated coun­ters, and af­ter Mor­gan Stan­ley up­graded Malaysia to “equal weight”. The key in­dex climbed 11.16 points to end the week at 1,803.76, off an open­ing low of 1,789.60 and high of 1,804.89, as gain­ers led losers 589 to 302 on more ac­tive trade to­tal­ing 2.68 bil­lion shares worth RM2.48 bil­lion.

The FBM KLCI’s trad­ing range ex­panded to 45.23 points last week, com­pared with 27.73 points in the pre­vi­ous week, as for­eign sell­ing on Wed­nes­day de­pressed it down to a near one-month low.

On mo­men­tum in­di­ca­tors, the daily slow stochas­tics for the FBM KLCI is hook­ing up from the lower neu­tral re­gion, but the weekly in­di­ca­tor is flat­ten­ing at the over­bought zone. The 14-day Rel­a­tive Strength In­dex (RSI) in­di­ca­tor has hooked up back above the 50 mid-point mark, but the 14-week RSI in­di­ca­tor stayed level in the neu­tral re­gion.

On trend in­di­ca­tors, the daily Mov­ing Av­er­age Con­ver­gence Di­ver­gence (MACD) sig­nal line is still lev­el­ing off due to weak up­side mo­men­tum, while the weekly MACD in­di­ca­tor’s as­cent is also los­ing up­ward mo­men­tum. Mean­time, the 14-day Di­rec­tional Move­ment In­dex (DMI) trend in­di­ca­tor man­aged to sus­tain a pos­i­tive stance, with the +DI and DI lines in ex­pan­sion mode on a rising ADX line.

Con­clu­sion

Last week’s re­bound from a sell­off has lifted short-term mo­men­tum in­di­ca­tors into pos­i­tive mode, im­ply­ing fur­ther gains ahead, but medium-term in­di­ca­tors stayed neu­tral, sug­gest­ing that more fol­low-through strength in buy­ing mo­men­tum is needed for a con­vinc­ing re­cov­ery. On the ex­ter­nal front, per­sis­tent threats from the US pres­i­dent to im­pose more tar­iffs should keep in­vestors side­lined and cau­tious, pend­ing more clar­ity.

On the in­dex, im­me­di­ate over­head re­sis­tance will be the up­per Bollinger band at 1,828, with stronger hur­dles from 1,851, the 23.6 per cent FR level of the April 2018 high of 1,896 to the De­cem­ber 2017 low of 1,708, fol­lowed by 1,867 and 1,880. Im­por­tant up­trend sup­ports are at 1,797 and 1,768, the re­spec­tive 30- and 50day mov­ing av­er­ages, while key re­trace­ment sup­ports are at 1,780 (61.8 per cent FR) and 1,752 (76.4 per cent FR).

Blue chips, such as Ga­muda, Gent­ing Bhd, Gent­ing Malaysia and Sime Darby, should stay at de­pressed lev­els given the weak buy­ing mo­men­tum, while chip ex­porters like Glo­be­tron­ics and Inari Amer­ton are likely to un­dergo fur­ther profit-tak­ing cor­rec­tions.

Medium-term in­di­ca­tors stayed neu­tral, sug­gest­ing that more fol­lowthrough strength in buy­ing mo­men­tum is needed for a con­vinc­ing re­cov­ery.

The sub­ject ex­pressed above is based purely on tech­ni­cal anal­y­sis and opin­ions of the writer. It is not a so­lic­i­ta­tion to buy or sell.

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