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Monday, August 16, 2010

Weekly Market Preview 16 August 2010

From the Chartroom
Our Malaysian bourse could have hit a near term bottom already. On the other hand, any upward movement will probably be gradual. The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) touched a low of 1,342.07 on Thursday before erasing all the initial losses to recover to where it was two Fridays ago. Losing ground through the week though were the FBM 70 Index (-0.6%) and the FBM ACE Index (-0.4%). Amid the profit-taking mood, daily average volume softened to 787.7m shares (from 947.9m units) valued at RM1.1b (versus RM1.3b).

Asian equity markets ran into headwinds that were blowing out from the U.S. The major losers in the region last week were China shares listed in Hong Kong (-4.3%), Japan (-4.0%) and Hong Kong (-2.8%). Key bellwethers on Wall Street also succumbed to selling pressures, falling between 3.3% and 5.0% week-onweek. Essentially, sentiment was hurt by worries that the world’s biggest economy might be stumbling, a scenario that has also been acknowledged by the Federal Reserve when it said last week the pace of the economic recovery is anticipated to be more modest in the near term.

What about the economic condition back home? It should be reasonably solid judging by the healthy statistics in recent months:
  1. The external trade data showed an annual increase of 22% for exports and 30% for imports in the Apr – Jun period, translating to a quarterly trade surplus of RM23.3b; and
  2. The Index of Industrial Production (IPI) was up 10.8% year-on-year between Apr to Jun.

This then implies Malaysia’s Gross Domestic Product (GDP) performance would come in strong in 2Q10 (after registering +10.1% in 1Q) when the report is released on Wednesday (18 Aug), which could also touch on the future expectations. Meanwhile, we are still waiting for the government to make public the second part of Malaysia’s New Economic Model (NEM) – a blueprint that is designed to elevate our country’s economic status to a highincome nation – which was previously scheduled to be unveiled in the first half of Aug.

On the corporate front, the Apr – Jun quarterly reporting season is expected to intensify in the week ahead. Among the listed companies tentatively due to announce their financial results include Malaysian Airline System (on Monday), KL Kepong (Wednesday), MISC (Thursday), WCT (Thursday) and Maybank (Friday). Just to put things in perspective, the FBM KLCI has advanced from a trough of 1,243.86 (in late May) to a peak of 1,370.52 (in early Aug), up 126.7-point or 10.2%. Thereafter, it slid to as low as 1,342.07 last Thursday, representing a decrease of 28.5-point or 2.1%. The key market barometer then recovered swiftly
to settle at 1,360.15 on Friday. Has the market correction run its course? It appears to be so in our eyes, at least for the time being. The FBM KLCI has found support by bouncing up thrice from a minor upward sloping trend line (see chart overleaf). If this pattern persists, then we reckon the index is likely to plot higher lows ahead. Further down, we have drawn support levels at 1,340 (first) and 1,305 (second).

Is our local bourse going to resume its uptrend? Probably yes though it may not be right away. The consolidation process could carry on – by swinging sideways with a positive bias – as it takes time for the market to absorb the profit-taking activity. Our immediate and next resistance targets for the FBM KLCI to overcome are set at 1,375 and 1,395, respectively.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

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