FBM KLCI could tumble towards the support zone of 1,415-1,435 ahead

Yesterday’s market rebound might be a short-lived one as our Malaysian bourse is likely to surrender all its gains and more following Wall Street’s overnight collapse. Its benchmark FBM KLCI could tumble towards the support zone of 1,415-1,435 ahead.

Investors will be looking to dump shares across the region today after major U.S. equity indices plunged between 4.1% and 4.6% last night. Essentially, market sentiment was hit hard amid mounting worries that there would be spillover effects from possible fallout from the prevailing European debt crisis. With the number of declining stocks set to overwhelm advancing ones back home, hoping to buck the bearish trend is Malaysia Airports. The stock may react to a media report that airport taxes could be raised from next month.

Technical rebound

Our benchmark FBM KLCI recovered from a low of 1,423.47 during the morning session yesterday to close at 1,472.14 (-24.85pts). Technically speaking, the benchmark index is likely to showcase a technical rebound, pulling away from its immediate support level of 1,465.

Sentiments could be further boosted by the overnight gains in the Wall Street with the US key equity indices rebounded strongly between +4.0% and +5.3%, after the worst drop since Dec 2008. The Fed has vowed to keep interest rates near zero through mid-2013 which could be seen as a temporary respite for the regional markets today.

Back home, counters that are likely to garner increased trading interest today include: (a) Malaysia Airlines and AirAsia, after Khazanah agreed to swap 20.5% of its ownership in Malaysia Airlines for a 10% stake in AirAsia, and (b) Hartalega, following its best quarterly results with RM55m net profit which came better than expected. Meanwhile, industrial production statistics for June will be on tap later in the evening.

Capital preservation will be the priority of most investors for now

After recovering from a low of 1,476.24 to close at 1,496.99 yesterday (which represents a 27.4-point decline), the key FBM KLCI is expected to plunge deeper on persisting selling activities today. Technically speaking, the benchmark index may fall towards the next support level of 1,465 ahead.

Essentially, investors will be more inclined to sell rather than buy equities following Wall Street’s extended freefall. Major U.S. stock bellwether tumbled further last night (down between 5.5% and 6.9% at the closing bell) in the aftermath of S&P’s downgrade of the U.S. sovereign credit rating. And more downside could be in store when trading resumes today, as the Dow Jones Industrial Average futures contract was hovering at a 157-point discount to the spot rate this morning. Given the prevailing jittery market mood, it seems too early to bottom fish at this juncture.

Capital preservation will be the priority of most investors for now.

From HWangDBS

When the U.S. sneeze the rest of the world catches the cold.

Our Malaysian bourse could carry on marching to the beat of its overseas peers as volatile external forces continue to dictate investors’ sentiment. Its benchmark FBM KLCI may gyrate with a negative bias, probably falling inside the support zone of 1,465-1,495 ahead.

The key market barometer reached a low of 1,509.37 before settling at 1,524.43 last week, down 24.4- point or 1.6% from where it was two Fridays ago, its fourth consecutive week of declines. Both the FBM 70 Index (-2.8% week-on-week) and the FBM ACE Index (-1.7%) were hit too. Trading activity rose to a daily average of 1.2b shares valued at RM2.0b, compared to the 1.0b units worth RM1.6b traded a fortnight ago. When the U.S. sneeze the rest of the world catches the cold. And this was what happened last week. Although the legislative approval for a raise in federal debt ceiling was granted, worries over the U.S. economy losing steam and sovereign credit rating downgrades spooked investors.

Consequently, Wall Street’s equity indices dived sharply to close with a weekly drop of between 5.8% and 8.1%, thus wiping out their year-to-date gains. The bears also crossed over to the other parts of the world, trampling on Asian equities to leave behind a trail of destructions. For the week just ended, the worst hit stock markets in the region were Taiwan (-9.2%), Korea (-8.9%) and China shares listed in Hong Kong (-7.6%). With the economy being the salient talking point these days, the U.S. Federal Reserve will come under greater scrutiny this week. At the Federal Open Market Committee meeting on Tuesday, there could be added expectations for the policymakers to announce fresh economic stimulus initiatives, or at least prevent
confidence from tanking further by spelling out contingency plans should the world’s largest economy threaten to slip into a double-dip recession, while keeping interest rates low for an extended period. Realistically speaking, it will take time for sentiment to pick up again following last week’s global equities rout. This should apply too to our local bourse as its performance will still be subject to foreign fund flows (and any redemption impact). According to the stock exchange, foreigners were net buyers for the fourth straight month when they posted a surplus sum of RM0.6b in Jul (versus +RM3.2b in Jun). The amount of foreign money in Malaysia equities, therefore, could have increased slightly (from our estimate of RM290b based on a foreign ownership of 22.0% as of end-Jun), notwithstanding last week’s market sell-off.

Meanwhile, in the month of Jul, local institutional funds were equally balanced in terms of buying and selling (versus a net selling figure of RM1.9b the previous month) while retail investors were net sellers to the tune of RM0.2b (-RM0.8b in Jun). For the coming week, our domestic stock market may continue to take the leads from overseas developments, which will make local news less relevant. On tap are: (a) the index of industrial production report for Jun, due for release on Wednesday; (b) plantation statistics for Jul (to be out on Wednesday); and (c) isolated material corporate events such as a possible share swap pact between the substantial shareholders of Malaysian Airline System and AirAsia.

On the chart, the FBM KLCI – after a pullback of 72.7-point or 4.5% from its peak of 1,597.08 – has dropped to where it was three months ago and is now hovering just marginally above last year’s closing level of 1,518.91. The bearish momentum generated from the aggressive selling last week suggests that the benchmark index is expected to remain under pressures going forward. A further sell-down could then send the bellwether to test the first two support lines of 1,495 and 1,465, respectively.

While a sustained market rebound appears less probable in the short run – as a trend reversal may only be in the offing if and when the FBM KLCI crosses above 1,575 – it is still premature to jump to conclusion that the bull run that started in mid-Mar 2009 has already ended as we anticipate probable interventions from policymakers around the world to check the slide. Let’s keep our fingers crossed that this will be done sooner rather than later.

Report From HWangDBS

Wall Street last night, causing a collapse of between 4.3% and 5.1%

Mayday! Mayday! The bears ran wild on Wall Street last night, causing a collapse of between 4.3% and 5.1% in key equity indices amid mounting concerns that the global economic recovery might stall.

This will inevitably trigger a sell-off across Asia equities today. The benchmark FBM KLCI on our Malaysian bourse will not be spared too, likely to drop below the immediate support level of 1,530 ahead. In terms of corporate developments, Atis should buck the falling market trend, as the company has proposed a selective capital reduction and repayment exercise to make a cash return of RM1.30 per share to entitled shareholders. Separately, Affin shares are expected to come under focus too after it called off its acquisition plan to acquire an Indonesian bank.

Wall Street went on a rollercoaster ride last night

Wall Street went on a rollercoaster ride last night. Key U.S. equity indices were down 1.4%-1.8% at their intra-day lows before staging a subsequent rebound to finish in positive territory (up between 0.3% and 0.9% at the closing bell) as some investors speculated that the Federal Reserve could implement fresh stimulus measures to boost the economy.

As a response, sentiment across Asia today will likely remain nervous following the volatile overnight performance of Wall Street. Back home, the benchmark FBM KLCI could struggle to break past its immediate resistance barrier of 1,550 ahead. With the economy being the main subject widely talked about currently, investors will be eager to check out Malaysia’s external
trade statistics for Jun.

One media survey has projected an annual rise of 6.1% for exports and 2.5% for imports, translating to a monthly trade surplus of RM7.7b. On the corporate front, recently listed Prestariang shares may see added trading interest today after it has signed an agreement with Prometric to develop a testing and certification program for English for its customers.

FBM KLCI may see a marginal downward bias

Asian equities could give back parts of their gains made yesterday due to an absence of follow-through buying activity today. This comes as key stock indices on Wall Street fell between 0.1% and 0.4% last night as investors reacted negatively to weak manufacturing data, which overshadowed an imminent legislative approval for a higher federal debt ceiling.

Back home, the benchmark FBM KLCI may see a marginal downward bias too, possibly attempting to find a stable footing above the resistance-turned-support line of 1,550.
Meanwhile, there is not much corporate news for investors to chew on today. One local business daily reported that a consortium comprising the controlling shareholders of Genting Group, Hong Leong Group and Lion Group has signed an agreement to acquire Tanjong’s numbers forecasting operation for RM2.1b. Separately, Pulai Springs has received a conditional takeover offer from its substantial shareholder to purchase the remaining shares at RM1.18 per share in cash (versus its last done price of RM0.90).

Report from HWangDBS