KLCI sees con­sol­i­da­tion phase, bullish bias

The Star Malaysia - StarBiz - - Market Watch - Mar­ket trend FONG MIN YUAN my­[email protected]­tar.com.my

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.

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.