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Sunday, July 18, 2010

Weekly Market Preview 19July 2010

From the Chartroom
This week’s performance could signal whether our Malaysian stock market is ready for a positive breakout or will remain inside a consolidation pattern. Riding on increased buying interest especially in the first half of last week, the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) added 12.3-point or 0.9% from two Fridays ago to finish at 1,336.65. Climbing through the week too were the FBM 70 Index (up 1.8%) and the FBM ACE Index (+0.1%) with daily average volume and value rising to 680.0m shares (from 561.6m units) and RM1.1b (from RM908.8m), respectively.

As revealed by Bursa Malaysia last Friday, there is still fairly little foreign money parked in Malaysian equities at the moment. Based on the stock exchange’s record, foreign ownership as a percentage of overall market capitalization stood at 20.6% in Jun 10. It, nonetheless, represents a tiny increase from 20.5% in Mar 10 (and versus 20.4% in Dec 09). This somewhat reconciles with our earlier remark (highlighted in our From The Chartroom write-up dated 5 Jul) that foreign investors bought more Malaysian shares than they sold – translating to a slight net amount of RM0.8b – between Apr and Jun this year, after accounting for 26% of total trading value during the second quarter.

The low foreign presence means that our domestic bourse will probably be more resilient than its overseas peers, just like the scenario in recent months. With macroeconomic data on the external front giving out mixed signals thus far, investors may have to look for investment trends from the ongoing U.S. corporate reporting season. It is also the case in Malaysia, as earnings announcements for the Apr – Jun 10 quarter stream in this week from the likes of Public Bank (Monday afternoon), Digi (Tuesday afternoon) and BAT (Thursday evening). Last week, the FBM KLCI momentarily tested the upper area of our consolidation zone that is marked by the
1,280 and 1,340 lines on the chart. After touching a high of 1,341.96, an absence of follow-through buying activity subsequently caused the benchmark index to back slide.

Yet, there is still hope for the bellwether – after climbing in six of the past seven weeks for a cumulative jump of 67.5-point or 5.3% - to stage a breakout on the upside. This will be probable assuming it could hold on to much of its gains as the market absorbs the prevailing profit-taking pressures. By showing resilience, investors – who may then perceive a limited downside scenario – will turn buyers of shares sooner rather than later. And an extension of the uptrend is likely if and when the FBM KLCI clears the 1,340 resistance barrier, as it makes its way towards the next resistance target of 1,375. Alternatively, should the index pullback persist, it would then suggest the 6½-week market consolidation process is expected to drag on for the time being, with the first and second support levels to be found at 1,305 and 1,280, respectively.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

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