KLCI sees consolidation phase, bullish bias
REVIEW: On the wider global scene, the dark cloud that had overtaken the investment landscape in 2018 continued to subside in the second week of the year.
It seemed weak year-end economic data was enough evidence to spur policymakers to take a more cautious approach with the economy.
The US Federal Reserve has taken pause on interest rate hikes, and investors are convinced the central bank will keep to a more dovish approach, moving forward.
The Chinese central bank, which is more cognisant of its slowing economy, cut the reserve requirement ratio for banks by 1%, which is expected to free up an additional US$210bil for the banking system.
However, it was the meeting between Washington and Beijing in the early half of the week – initially scheduled for two days but extended to three – that had investors talking about an approaching resolution to the trade conflict.
China’s pledge to substantially increase the purchase of US goods to reduce the latter’s trade deficit seemed to work towards reducing tensions for the time being.
Bursa Malaysia picked up on the recovery in sentiment. While the benchmark index had yet to make significant gains, the return to positive market breadth, coupled with increased turnover, suggested that buying interest was returning to the exchange.
Offshore fund selling on the local exchange has also dropped significantly since the previous week. From Monday to Thursday, Bursa Malaysia posted net offshore equity sales of RM80.8mil, with yesterday’s performance set to reduce that figure.
Still, signs of nerves and profit-taking could be seen in the negative performances by the FBM KLCI on Tuesday and Wednesday.
Wednesday’s performance was particularly dismal, given that the FBM KLCI had bucked the global trend to end lower despite being in positive territory for most of the trading day.
Petronas Chemicals looked to be the main culprit of the pullback as a ratings downgrade by JP Morgan has sent the stock nearly 5% lower, shaving over six points from the 30-stock index.
On the forex market, the focus on easing and economic stimulus has worked to reverse the trend on the US dollar. The greenback is now on a slide against emerging-market currencies as investors grow in confidence and take up riskier assets.
Over the course of the week, the ringgit strengthened about 1% against the US dollar over the week and looks set to continue its recovery. Oil prices, which jumped after the turnaround in sentiment, are also helping to buoy the local currency.
This has had an immediate effect on glovemakers, already pressured by increasing competition in the nitrile gloves sector. Top Glove and Hartalega, two constituent stocks of the FBM KLCI, experienced a steady slide in share price.
Top Glove, the world’s largest glovemaker, dropped over nine consecutive days to Thursday and lost 18.5% of its value before rebounding yesterday.
Joined by other glove manufacturers Supermax and Kossan, the negative pressure on the sector looks set to continue over the immediate horizon.
On Thursday, the FBM KLCI jumped 11.05 points to 1678.88 as investors shrugged off the caution seen over the previous two days and played catch-up to other markets. Concomitantly, other Asian markets turned to profit-taking as investors decided the await further concrete evidence of improvements in trade relations.
Yesterday, it was announced that Chinese Vice-Premier Liu He would likely visit Washington for high-level trade talks at the end of the month, stoking the rally further. This kept profit-taking on the local exchange at bay while the FBM KLCI rose 4.34 points to 1,683.22.
Statistics: Week-on-week, the major index was up 13.44 points or 0.8% at 1,683.22. Total turnover for the four-day week stood at 14.17 billion shares amounting to RM11.3bil compared with 7.22 billion shares worth RM4.78bil over the last four-day trading week.
Outlook: There is a consolidation channel forming in the FBM KLCI technical chart with the 50-day simple moving average putting a lid on prices. However, an upside bias has developed along with growing volume, indicating the return of investor interest.
The index’s 13-point advance over the week and back-to-back gains on Thursday and Friday show that investors are anticipating buying leads. Positive news in the lead up to the US-China trade talks on Jan 30 and 31, should they materialise, may be the catalyst the index needs to break out of consolidation mode.
A breach above the 50-day SMA over the coming week would help to solidify this improving sentiment and signal a resumption of a rally.
In line with this, the key momentum indicators are showing a return to positivity, albeit slowly, with the daily moving average convergence/divergence line edging higher towards the zero line.
The 1,680-point mark remains a springboard for the index to move higher with the overhead resistance resting at 1,709 points. To the lower end of the chart, the 1,652-point mark offers support.