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Tuesday, May 3, 2011

FBM KLCI may show a sideways trading pattern with a marginal positive bias for the time being

Although the flattish performance may still persist, initial signs are indicating that our Malaysian bourse could show a gradual uptrend going forward. A market recovery would likely be in progress if the FBM KLCI quickly pulls away – the farther the better – from 1,530 and glide towards 1,550.

The key market barometer inched up every day except Friday to close at 1,534.95, a cumulative increase of 12.2-point or 0.8% for the week. Finishing mixed though were the FBM 70 Index and the FBM ACE Index with a weekly change of +0.2% and –0.5%, respectively. Daily trading volume was light at 1.0b shares valued at RM1.3b, down from the 1.2b units worth RM1.5b that changed hands a fortnight ago. Investors’ focus will shift back to the domestic scene this week. After reading the U.S. Federal Open Market Committee statement last week – which in summary said that the federal funds rate would be kept low for an extended period and the quantitative easing program to purchase US$600b of longer-term Treasury securities would be completed end-Jun as per the original deadline – we should see added interest in Bank Negara Malaysia’s monetary policy committee meeting to be held on Thursday.

An immediate decision to hike interest rates – or an indication to do so in the near future – by the Malaysian policy makers could enhance further the appeal of the Ringgit as the rate gap widens. Given the better returns in relative term, the Ringgit has been on the rise, climbing 7% since a year ago to reach a fresh 13½- year high of RM2.9610 vis-à-vis the greenback last week. An appreciating Ringgit, in turn, is expected to attract fund inflows thus benefiting Ringgit-denominated financial assets like equities.

The value of a currency – other than interest rate consideration – also depends on economic fundamentals. We will get an update on Malaysia’s external trade performance when the exports-imports statistics for Mar are out on Friday. On the corporate front, the Jan – Mar quarterly reporting season continues with more financial announcements from the likes of Malaysia Marine & Heavy Engineering this week. Let’s hope there will be pleasant earnings surprises ahead to excite investors on our local bourse, just like how the better-thanexpected
profit numbers from the U.S. listed companies have propelled Wall Street to new post-crisis highs lately.

Technically, the FBM KLCI may show a sideways trading pattern with a marginal positive bias for the time being. Its downside is cushioned by the 39-day moving average line (a fairly reliable technical gauge in the past and is currently standing at 1,525), which suggests limited room for corrections. Beneath the line, we have set the second support level at 1,495. Should our market recovery eventually kick in as anticipated, the FBM KLCI will be well-positioned to test and overcome the immediate resistance barrier of 1,550. Thereafter, the bellwether may be eyeing to challenge the next resistance target of 1,575 as it slogs its way to surpass the all-time peak of 1,577 (which was hit in early Jan this year).

Report from HWangDBS

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