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Sunday, August 8, 2010

Weekly Market Preview 09 August 2010

From the Chartroom
The market signs are telling us that it could be time for our Malaysian bourse to pause for a temporary breather after scaling new heights last week.

After reaching a top of 1,370.52 on Tuesday – its highest level in 29 months – the bellwether FTSE Bursa Malaysia KLCI or FBM KLCI eased off to finish at 1,360.45 on Friday, little changed from the preceding week’s close of 1,360.92. However, the secondary tier stocks were mostly up, lifting the FBM 70 Index (+0.8%) and the FBM ACE Index (+0.9%) through the week. Consequently, daily average volume came in at 947.9m shares (from 868.7m units the week before) valued at RM1.3b (RM1.3b previously). There is a bit more foreign money in Malaysia now than before. According to the latest statistics provided by Bursa Malaysia, foreigners bought more shares than they sold – equivalent to a net amount of RM2.3b – in Jul.

This is the second straight month when foreign investors were net buyers of our local equities (after registering +RM1.8b in Jun). Combined, they accounted for 27.5% of total trading value during the month (28.2% in Jun). In comparison, both local institutional (-RM1.6b in Jul versus -RM1.2b in Jun) and retail (-RM0.4b in Jul versus -RM0.5b in Jun) investors remained net sellers for the second month in a row. They made up 36.8% and 20.2% of total value traded in Jul (versus 39.4% and 18.5% respectively in the previous month). Note: the balance trading activity came from other categories of investors namely proprietary day traders (4.7%)
and local nominees (10.7%). Can our domestic bourse attract continued buying interest from foreign funds? Perhaps so, coming off from a low base, though the money may only trickle (rather than rush) in. One pull factor is the lure of our Ringgit. Should the Malaysian currency – presently hovering near its highest level (of RM3.1320 / US$ in Apr 08) since the removal of exchange rate peg in Jul 05 – appreciate further, our local stocks stand to benefit as overseas investors may want to park their funds in this country in search of incremental portfolio returns.

To get an update on currencies market outlook – which is shaped by interest rate differentials as one of the considerations – we will check on the U.S. Federal Open Market Committee meeting due on Tuesday (10 Aug). Whilst the policymakers are likely to keep the federal funds rate at almost zero, they may drop hints on future rate hikes based on their assessments on the economic and inflation conditions.

Back home, the focus of the week, in terms of scheduled news flows, includes:
(a) the Index of Industrial Production (IPI) for Jun on Tuesday;
(b) plantation statistics for Jul also on Tuesday; and
(c) corporate earnings reports for the Apr – Jun quarter.

Technically speaking, the FBM KLCI may have entered a short-term consolidation phase. To be sure, a pullback is only normal at this stage considering the benchmark index’s swift rally (up 61.0-point or 4.7% in slightly more than one month). Nevertheless, any market correction from an overbought territory is anticipated to be relatively shallow. Our first and second support lines are currently set at 1,340 and 1,305, respectively. Yet, we believe the FBM KLCI has not reached its peak since the recovery started in mid-Mar 09. A resumption of its uptrend could be forthcoming after digesting the recent gains, with 1,375 (immediate) and 1,395 (next) standing as the resistance targets to be challenged going forward.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

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