Weekly Market Preview 27 September 2010

From the Chartroom

A market correction appears to be in progress now. How low more can it go?

The bellwether FBM KLCI wanted to move higher last week, climbing in the initial days (to a peak of 1,479.59) before succumbing to selling pressures (and hit a low of 1,445.33) towards the end. It settled at 1,451.19 on Friday for a weekly decrease of 15.8-point or 1.1%. Falling in tandem during the week were the FBM 70 Index and the FBM ACE Index, down by 0.4% and 0.8%, respectively. Daily average trading volume was larger at 1.2b shares (versus 894.0m units a week ago) though average trading value came in lower at RM1.6b (from RM1.8b), as investors’ interest skewed to the small-mid cap companies.

With news flows anticipated to go light this week – no major events are spotted on our calendar – we reckon the mood will be to sell rather than buy equities following the recent winning streak. Routine reports on tap include:

(a) Gamuda’s latest quarterly financial result announcement scheduled on Tuesday; and
(b) the monthly banking statistical bulletin for Aug due on Thursday.

There may also be lesser tendency for window-dressing activity to prevail as we approach the end of 3Q10, given the buoyant market rally to-date (the FBM KLCI is now up 10.4% in the current quarter and 14.0% since the beginning of the year).

From a technical perspective, after touching and subsequently backed off from 1,480 thrice since two Fridays ago, the FBM KLCI is signaling that it could be about time to take a rest. After all, it had been climbing at a quick and steep pace, up in 13 of the past 16 weeks before last week’s decline. Even so, measuring from the highest point of 1,479.59 to the trough of 1,445.33, the fairly smallish percentage drop of 2.3% suggests that further downsides remain likely.

We have set our lines of defence for the FBM KLCI at 1,435 (first) and 1,415 (second) at the moment. Below this, a major support level is drawn at 1,395. They translate to probable pullbacks in the range of between 3% and 6% from the recent peak, which will then sit somewhere within the past market correction pattern since the current leg of rally began in late May this year (see chart next page).

Yet, this may not be the end of the 1½-year-old stock market uptrend. Until and unless a nasty surprise is unleashed to trigger a trend reversal, the positive momentum will probably carry the benchmark index to fresh highs beyond the ongoing consolidation process. On the chart, the FBM KLCI will be eyeing to overcome 1,465 (immediate resistance) before testing 1,495 (next resistance) when it eventually resumes its way up.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

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)

Weekly Market Preview 06 September 2010

From the Chartroom
Malaysia’s bellwether FBM KLCI is on the roll, racing ahead to surpass our resistance targets sooner than forecasted. What next?

Up on all days except Friday, the key market barometer jumped 24.6-point or 1.7% during the week to finish at 1,435.67. Rising in tandem were the FBM 70 Index (+2.5%) and the FBM ACE Index (+0.8%). As big-caps garnered more interest, daily average activity increased to 928.5m shares (from 803.9m units) in volume and RM1.8b (RM1.4b previously) in value.

Foreign funds have been coming to Malaysia. According to Bursa Malaysia’s record published last week, they were net buyers of RM2.9b worth of Malaysia equities in Aug. This marks the third straight month of net buying by foreigners (+RM1.8b in Jun; +RM2.3b in Jul), although their level of trading participation was only marginally higher at 28.4% of value traded (versus 27.5% in Jul).

Aug is also the third month in a row when both local institutional and retail investors sold more shares than they bought, with net figures of –RM2.2b and –RM0.5b, respectively. In comparison, net selling by:
(a) local institutions stood at RM1.2b in Jun and RM1.6b in Jul; and
(b) local retail investors was RM0.5b in Jun and RM0.4b in Jul.

In terms of trading value breakdown for last month, local institutions accounted for 35.4%
(36.8% in Jun) while local retailers made up 21.0% (20.2% in Jun). Overall trading interest, nonetheless, may wane a bit in this coming holiday-shortened fortnight. Just one key economic report is on tap: the index of industrial production (IPI) for Jul due on Thursday (9 Sep).
Separately, the plantation statistics (on production, exports, inventory, etc) for Aug are scheduled for release next Wednesday (15 Sep).

As investors get into the holiday mood, our domestic stock exchange may take a rest too. Against a quieter backdrop, a consolidation pattern could be approaching. After all, the benchmark FBM KLCI – following an almost uninterrupted climb – has chalked up a cumulative gain of 86.3-point or 6.4% in a short space of 3½ weeks, now standing at just 5.8% below its all-time high of 1,524.69 (achieved in mid-Jan 08).

If an overdue market correction does set in, then we reckon the bellwether will likely find its first and second support lines at 1,415 and 1,395, respectively. Measured from the index high of 1,441.80 (reached last Thursday), this represents to a probable 2%-3% drop.

On the upside, the FBM KLCI remains on track to advance to higher highs since the market rally began in mid-Mar last year. The resistance targets to be overcome are seen at 1,435 (immediate) and 1,465 (next). The momentum could eventually carry the FBM KLCI – after hitting the mid-point range last week – further into our 2010 peak projection band of between 1,410 and 1,480.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

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)

HWangDBS - Highlights

Axiata Group (RM4.42; Buy; Price Target: RM4.95; AXIATA MK)
Broad-based improvement
• Annualized core 1H10 result was within our estimate but ahead of consensus’
• Nudged up FY10F-11F earnings by 2%-3%; raised SOP-TP to RM4.95, maintain Buy
• Applied new dividend policy (30% payout) to FY10F NI, raised FY11F payout to 30% (from 10%)

PPB Group (RM16.90; Hold; Price Target: RM16.80; PEP MK)
Limited catalysts ahead
• 2Q10 below, sweetener was DPS of 70 sen
• Spiraling wheat prices a dampener
• Hold, cut SOP-TP to RM16.80

IJM Corp (RM4.95; Buy; Price Target: RM6.20; IJM MK) Accelerating earnings momentum
• Good quarter, property was star performer
• Construction earnings now at inflection point
• Buy, SOP-derived TP of RM6.20

Parkson Holdings (RM5.48; Buy; Price Target: RM6.80;PKS MK) Building on positive momentum
• Sales momentum spills over to Sep quarter
• Earnings growth driven by SSS growth and new stores
• Reaffirm Buy call with RNAV-derived TP of RM6.80 (from RM7.00)

Alam Maritim (RM1.12; Buy; Price Target: RM1.40; AMRB MK)
Temporary rough patch
• Lower fleet utilisation and delay in vessels delivery will drag down near term earnings
• Cut earnings after revising assumptions; job orders expected to improve in 2H10
• Still cheap; maintain Buy with RM 1.40 TP

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Weekly Market Preview 16 August 2010

From the Chartroom
Our Malaysian bourse could have hit a near term bottom already. On the other hand, any upward movement will probably be gradual. The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) touched a low of 1,342.07 on Thursday before erasing all the initial losses to recover to where it was two Fridays ago. Losing ground through the week though were the FBM 70 Index (-0.6%) and the FBM ACE Index (-0.4%). Amid the profit-taking mood, daily average volume softened to 787.7m shares (from 947.9m units) valued at RM1.1b (versus RM1.3b).

Asian equity markets ran into headwinds that were blowing out from the U.S. The major losers in the region last week were China shares listed in Hong Kong (-4.3%), Japan (-4.0%) and Hong Kong (-2.8%). Key bellwethers on Wall Street also succumbed to selling pressures, falling between 3.3% and 5.0% week-onweek. Essentially, sentiment was hurt by worries that the world’s biggest economy might be stumbling, a scenario that has also been acknowledged by the Federal Reserve when it said last week the pace of the economic recovery is anticipated to be more modest in the near term.

What about the economic condition back home? It should be reasonably solid judging by the healthy statistics in recent months:

1. The external trade data showed an annual increase of 22% for exports and 30% for imports in the Apr – Jun period, translating to a quarterly trade surplus of RM23.3b; and
2. The Index of Industrial Production (IPI) was up 10.8% year-on-year between Apr to Jun.

This then implies Malaysia’s Gross Domestic Product (GDP) performance would come in strong in 2Q10 (after registering +10.1% in 1Q) when the report is released on Wednesday (18 Aug), which could also touch on the future expectations. Meanwhile, we are still waiting for the government to make public the second part of Malaysia’s New Economic Model (NEM) – a blueprint that is designed to elevate our country’s economic status to a highincome nation – which was previously scheduled to be unveiled in the first half of Aug.

On the corporate front, the Apr – Jun quarterly reporting season is expected to intensify in the week ahead. Among the listed companies tentatively due to announce their financial results include Malaysian Airline System (on Monday), KL Kepong (Wednesday), MISC (Thursday), WCT (Thursday) and Maybank (Friday). Just to put things in perspective, the FBM KLCI has advanced from a trough of 1,243.86 (in late May) to a peak of 1,370.52 (in early Aug), up 126.7-point or 10.2%. Thereafter, it slid to as low as 1,342.07 last Thursday, representing a decrease of 28.5-point or 2.1%. The key market barometer then recovered swiftly
to settle at 1,360.15 on Friday. Has the market correction run its course? It appears to be so in our eyes, at least for the time being. The FBM KLCI has found support by bouncing up thrice from a minor upward sloping trend line (see chart overleaf). If this pattern persists, then we reckon the index is likely to plot higher lows ahead. Further down, we have drawn support levels at 1,340 (first) and 1,305 (second).

Is our local bourse going to resume its uptrend? Probably yes though it may not be right away. The consolidation process could carry on – by swinging sideways with a positive bias – as it takes time for the market to absorb the profit-taking activity. Our immediate and next resistance targets for the FBM KLCI to overcome are set at 1,375 and 1,395, respectively.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Weekly Market Preview 09 August 2010

From the Chartroom
The market signs are telling us that it could be time for our Malaysian bourse to pause for a temporary breather after scaling new heights last week.

After reaching a top of 1,370.52 on Tuesday – its highest level in 29 months – the bellwether FTSE Bursa Malaysia KLCI or FBM KLCI eased off to finish at 1,360.45 on Friday, little changed from the preceding week’s close of 1,360.92. However, the secondary tier stocks were mostly up, lifting the FBM 70 Index (+0.8%) and the FBM ACE Index (+0.9%) through the week. Consequently, daily average volume came in at 947.9m shares (from 868.7m units the week before) valued at RM1.3b (RM1.3b previously). There is a bit more foreign money in Malaysia now than before. According to the latest statistics provided by Bursa Malaysia, foreigners bought more shares than they sold – equivalent to a net amount of RM2.3b – in Jul.

This is the second straight month when foreign investors were net buyers of our local equities (after registering +RM1.8b in Jun). Combined, they accounted for 27.5% of total trading value during the month (28.2% in Jun). In comparison, both local institutional (-RM1.6b in Jul versus -RM1.2b in Jun) and retail (-RM0.4b in Jul versus -RM0.5b in Jun) investors remained net sellers for the second month in a row. They made up 36.8% and 20.2% of total value traded in Jul (versus 39.4% and 18.5% respectively in the previous month). Note: the balance trading activity came from other categories of investors namely proprietary day traders (4.7%)
and local nominees (10.7%). Can our domestic bourse attract continued buying interest from foreign funds? Perhaps so, coming off from a low base, though the money may only trickle (rather than rush) in. One pull factor is the lure of our Ringgit. Should the Malaysian currency – presently hovering near its highest level (of RM3.1320 / US$ in Apr 08) since the removal of exchange rate peg in Jul 05 – appreciate further, our local stocks stand to benefit as overseas investors may want to park their funds in this country in search of incremental portfolio returns.

To get an update on currencies market outlook – which is shaped by interest rate differentials as one of the considerations – we will check on the U.S. Federal Open Market Committee meeting due on Tuesday (10 Aug). Whilst the policymakers are likely to keep the federal funds rate at almost zero, they may drop hints on future rate hikes based on their assessments on the economic and inflation conditions.

Back home, the focus of the week, in terms of scheduled news flows, includes:
(a) the Index of Industrial Production (IPI) for Jun on Tuesday;
(b) plantation statistics for Jul also on Tuesday; and
(c) corporate earnings reports for the Apr – Jun quarter.

Technically speaking, the FBM KLCI may have entered a short-term consolidation phase. To be sure, a pullback is only normal at this stage considering the benchmark index’s swift rally (up 61.0-point or 4.7% in slightly more than one month). Nevertheless, any market correction from an overbought territory is anticipated to be relatively shallow. Our first and second support lines are currently set at 1,340 and 1,305, respectively. Yet, we believe the FBM KLCI has not reached its peak since the recovery started in mid-Mar 09. A resumption of its uptrend could be forthcoming after digesting the recent gains, with 1,375 (immediate) and 1,395 (next) standing as the resistance targets to be challenged going forward.


Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)