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Wednesday, July 27, 2011

U.S. federal debt ceiling impasse still nowhere in sight

With a breakthrough in the U.S. federal debt ceiling impasse still nowhere in sight, key U.S. equity indices plunged between 1.6% and 2.6% last night. This would likely hit Asian stocks when trading resumes this morning.

Our Malaysian bourse will probably not be spared from the selling pressures too. The benchmark FBM KLCI is expected to retreat further, possibly testing its immediate support line of 1,550 ahead. Given the bearish underlying market tone, and couple with the thin news flows on the corporate scene, investors may not be in the mood to buy equities at this moment. One company that could see added interest today is Malaysia Airports, which is scheduled to announce its financial results for the Apr – Jun quarter in the early afternoon.

Monday, July 25, 2011

The road to recovery could be a gradual process

The road to recovery could be a gradual process as our Malaysian bourse faces stiff resistance from external headwinds. This, however, does not change our technical stance that the benchmark FBM KLCI remains on track to resume its 28-month rally beyond the ongoing consolidation phase.

Coming under renewed selling pressures, the key market barometer fell to a low of 1,552.71 before finishing at 1,565.06 for a weekly drop of 12.2-point (-0.8%). Faring relatively better through the week though were the FBM 70 Index (+0.7%) and the FBM ACE Index (+1.4%). Trading activity picked up to a daily average of 980.1m shares in volume (from 759.8m) and RM1.8b in value (RM1.5b previously), partly lifted by contributions from three new listings (namely Inari, Bumi Armada and Catcha Media).

Essentially, the fall in our local equities was broadly in tandem with the underlying regional weakness. Most share markets across the region saw red during the week – with China shares listed in Hong Kong (-1.3%), Taiwan (-1.3%) and Hong Kong (-1.2%) the hardest hit at the height of the selling – as overseas sentiment was hurt by continued worries on debt woes in Europe and America. Wall Street was affected too with its stock indices posting weekly declines of as much as 1.5%-1.6% at their lows. Nevertheless, almost all bourses subsequently rebounded from their intra-week troughs to finish in positive territory.

In a sense, our Malaysian bourse’s tracking of the regional patterns is not actually surprising since there is now a bigger presence of foreign money. According to the latest statistics provided by the stock exchange, foreign ownership (as a percentage of overall market capitalization) has climbed from 21.4% end-Mar to 22.0% end-Jun. This follows three straight months of net buying by foreign investors – totaling RM6.0b worth of stocks – during the second quarter.
In terms of absolute value, our ballpark calculations suggest that the amount of overseas funds parked in Malaysia equities stood at approximately RM290b at mid-year. Interestingly, this figure – which is derived based on a foreign shareholdings level of 22.0% as of end-Jun – has already exceeded the estimated sum of RM277b as of end-Dec 07 even though the foreign ownership back then was much higher at a peak of 26.2%.

For the coming week(s), external developments will still be the primary driving force behind our stock market performance since domestic news will be relatively scarce. On the calendar will just be a short list of events comprising:
(a) corporate earnings quarterly report cards from the likes of Public Bank (on Monday) and
Malaysia Airports (Thursday); and
(b) new listings such as Hibiscus Petroleum (on Monday), Peterlabs Holdings (Tuesday) and Prestariang (Wednesday).

From a technical perspective, it could take time for the FBM KLCI to recover after sliding back to where it was in late Jun. This suggests the bellwether may be locked in a sideways pattern in the short run, possibly bouncing up and down between the immediate support and resistance lines of 1,550 and 1,575, respectively. A preliminary resumption of our market uptrend – which we are still optimistic on – will probably be forthcoming only when the benchmark index crosses the 39-day moving average line (currently hovering at 1,567) and pulls away from the support-turned-resistance threshold of 1,575.

Report from HWangDBS

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