Weekly Market Preview ( 06 JUN 2011 )

After running sideways for approximately 2½ months, our Malaysian bourse could be back on track to scale greater heights ahead. The benchmark FBM KLCI, which leaped to a higher level last week, may build on the technical momentum and attempt to overcome its record peak of 1,577 soon.

The bellwether gained grounds last week, climbing the most on Tuesday for a weekly increase of 11.2-point or 0.7%. Of which, 5.2-index point was contributed solely by Tenaga when its share price rose 6.2% following the electricity tariff hike approval. Finishing mixed through the week though were the FBM 70 Index (+0.8%) and the FBM ACE Index (-1.6%). The larger cap counters attracted more interest, as trading activity showed a daily average of 808.2m shares in volume and RM2.0b in value (which translates to RM2.47 per share), versus the 837.6m units worth RM1.5b (or RM1.79 per share) traded the previous week.

It seems like institutional funds, particularly from overseas, are more active these days. This was also the case in May when foreigners accounted for 31% of overall trading value (up from 20% in Apr). The stock exchange’s latest monthly record released last week also revealed that foreign investors were net buyers of Malaysia equities for the second month in a row, chalking up a net amount of RM1.6b in May versus RM1.2b in Apr.

On the other side of the fence, local institutions sold more shares than they bought last month, totaling a net amount of RM1.3b, quite comparable to Apr’s net selling figure of RM1.2b. Meanwhile, retail investors bought and sold more or less similar amount of shares (measured in value) in May, just like what it was in the preceding month. Following the end of the Jan – Mar quarter corporate reporting season last week, news flows may go slow ahead. In the coming fortnight, routine reports due include: (a) the index of industrial production for Apr
scheduled on Thursday (9 Jun); (b) the May plantation statistics to be released on Friday (10 Jun); and (c) new stock listings by UOA Development (on Wednesday, 8 Jun) and XOX (Friday, 10 Jun).

Nonetheless, light news could be good news for our domestic bourse from a technical perspective. The FBM KLCI jumped out from its sideways pattern last week when it overcame the 1,550 barrier. More importantly, the key market barometer then made an initial breakaway from a triangle formation (see chart overleaf), signaling a possible continuation of the market rally that began in mid-Mar 09. This suggests that the positive momentum generated – which has lifted the index by 44.4-point or 2.9% over the last one month – could carry on and push the FBM KLCI to test the immediate resistance line of 1,575. An ensuing breakout will mean a new historical high for the bellwether (currently stands at 1,576.95, which was attained in early Jan this year) as it makes its way towards the next resistance target of 1,605. Should a market pullback occur, we expect the FBM KLCI to find a stable footing at the support levels of
1,550 (first) and 1,530 (second), respectively.