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Monday, September 20, 2010

Weekly Market Preview 20 September 2010

From the Chartroom

Even after advancing to a series of higher highs lately, more upsides could still be in store for the FBM KLCI. The vital question to ask now is whether the bellwether would climb further without pausing or an overdue pullback is in the horizon already.

The bulls were still working diligently in the recent holiday-shortened week. The benchmark FBM KLCI made a weekly increase of 29.2-point or 2.0% to settle at 1,466.97 last Friday. Similar positive performance was also registered by the FBM 70 Index (+2.7%) and the FBM ACE Index (+2.6%) through the week. Trading activity came in at a daily average of 894.0m shares valued at RM1.8b, versus 610.4m units worth RM1.1b the week before.

If the falling US$ (and the strengthening Ringgit) is the main cause that has been motivating foreign funds to put their money in Malaysia equities since Jun this year, then investors would want to know the outcome of the U.S. Federal Open Market Committee meeting scheduled on Tuesday (21 Sep). While the U.S. policymakers are widely anticipated to keep the federal funds rate at near zero level for now, the key takeaways from the language of its accompanying statement – on the U.S. economic conditions, inflation outlook, other financial developments etc – are likely to reaffirm (or alter) the consensus opinion on interest rate / currency markets expectations.

Already, the sliding US$ is increasingly seen as a worry for some major exporting countries. Just last week, Japan intervened for the first time since 2004, buying the greenback and selling the Yen in an effort to reverse or halt the decline. From the perspective of equities investors, the currency swings (which can cut both ways) because of policy interventions and regulatory risks will be one leading force that could shift dramatically global funds flows ahead. On the home front, we will get to hear a lot of publicity on the government’s Economic Transformation Programme (ETP) and its components of National Key Economic Areas (NKEA), the details of which will be displayed for public viewing on Tuesday. While plenty of information – e.g. a list of projects to be rolled out, the investment sums involved, the targets to be achieved etc – will be made available, the focus will fall on sectors (like oil & gas, energy, infrastructure/construction and financial services) with immediate probable implications on our stock market.

There may also be a bit more interest on individual companies – such as Berjaya Sports Toto (on Monday) and SP Setia (on Thursday) – that are due to release their latest quarterly financial result announcements. Following the steep ascend in the FBM KLCI – up in 13 of the past 16 weeks for a cumulative increase of 15.6% with the deepest weekly drop amounted to a mere 1.4% – we reckon it is just a matter of time that an intermittent market correction would set in. What remains uncertain at this stage is whether it would come sooner or later.

After reaching a fresh high of 1,479.59 – a level last seen in mid-Jan 08 – our Malaysian bourse should be vulnerable to profit-taking pressures ahead. The first two resistance-turned-support lines for the FBM KLCI are drawn at 1,465 and 1,435, respectively. Yet, the FBM KLCI could scale greater heights on rotational plays eventually. As the index will likely extend its primary uptrend from a trough of 836.51 in mid-Mar 09, possibly recovering towards an all-time peak of
1,524.69 (in mid-Jan 08), we have pegged the resistance targets at 1,490 (immediate) and 1,520 (next) for the FBM KLCI to overcome along the way.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

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