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Sunday, August 29, 2010

Weekly Market Preview 30 August 2010

From the Chartroom
The benchmark FBM KLCI appears to be cruising on a course of its own, even as profit-taking activity is prevalent in the broad market. Whether the pace will last remains our focus at this juncture. Riding on the upward momentum, the bellwether added 16.0-point or 1.2% through the week despite market breadth coming in negative on four days (and quite even for the remaining one day).

The FBM KLCI consequently closed higher at 1,411.05 on Friday, while both the FBM 70 Index (-1.8%) and the FBM ACE Index (-3.1%) recorded weekly losses. Also, fewer shares changed hands during the week with daily volume averaging 803.9m shares (from 980.4m units) valued at RM1.4b (RM1.5b previously). Our piece last week talked about the two current drivers of Malaysia equities performance. There will be follow-up developments on both fronts this week.
First, the appeal of the Ringgit as an investment currency may (or may not) be enhanced depending on the outcome of Bank Negara Malaysia (BNM)’s monetary policy committee meeting scheduled on Thursday (2 Sep). After lifting the overnight policy rate thrice (by a total of 0.75%) in the preceding three sessions, the street remains divided on whether the policymakers would stand pat or tighten further. The currency outlook could then shape foreign investors’ appetite towards Ringgit-denominated assets like stocks.

Secondly, research houses in town will be tabulating the corporate earnings scorecards when the Apr – Jun quarterly reporting season comes to an end today. On our side, among the listed companies inside our coverage that have made their announcements so far, 60% met expectations while 23% beat estimates and the balance 17% were below par. Consequently, we will likely bump up slightly our universe earnings growth projections for 2010 (from 18% a quarter ago to roughly 22%).

Meanwhile, the external trade statistics – which capture Malaysia’s export and import performance – for Jul is due to be out on Thursday. Technically speaking, we prefer to see a healthy correction in the FBM KLCI first which could then pave the way for a sustained run-up thereafter. The key market barometer remains in an overbought area after climbing 162.1-point or 13.0% in three months, standing now at its highest level since Feb 08.

Thus, it may be just a matter of time before the benchmark index tumbles on intermittent selling pressures. To cushion any probable market declines, we have set our first and second support zones at 1,395 and 1,375, respectively. Else, if the existing momentum carries on uninterrupted and lifts the FBM KLCI to even higher grounds ahead, then it is poised to challenge the next two resistance targets of 1,415 and 1,435 sooner than anticipated.

On the chart, the FBM KLCI – which reached a high of 1,415.28 last week – has entered our 2010 peak projection range of between 1,410 and 1,480. More upside could be on the way as we reiterate our bullish technical stance, notwithstanding possible transitory pullbacks. Partly backing this view is an ascending triangle pattern (first highlighted in our report dated 2 Aug, reproduced in the chart overleaf), which has guided an index objective of 1,437 by measuring a vertical distance of the triangle height from the breakout point.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

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