Further corrections in construction-related stocks such as MRCB, Tebrau, UEM Land and Zelan will be a good buying opportunity, says a head of research.
SHARES on Bursa Malaysia extended their consolidation last week, with most investors staying away ahead of the year-end holidays amid mild profit-taking inn blue chips, while market players reduced commitments due to the progressively slower trading momentum.
Week-on-week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) lost 10.2 points, or 0.8 per cent, to settle at 1,260, with falls in Genting Bhd (-26 sen), Maybank (-7 sen), Axiata (-5 sen) and MISC (-16 sen) contributing to slightly more than half of the index’s losses.
Daily average traded volume and value dwindled to 607 million shares worth RM828.3 million, compared with 814.3 million worth RM1.13 billion in the previous week.
We are almost reaching the end of 2009 and there is no buzz about a year-end rally although a few economic indicators locally and abroad surprised on the upside. Malaysia’s Industrial Production Index (IPI), for instance, reverted to growth last October after declining for a year, thanks to expansions in electricity and manufacturing sub-components. This improvement was in-line with the recovery seen in exports for October, which rose unexpectedly. China too surprised the market when its IPI shot up 19.2 per cent year-on-year and exports fell less than expected. Japan’s lower-than-expected third quarter GDP growth of 1.3 per cent was a wet blanket but it quickly unveiled a 7.2 trillion yen stimulus package to jumpstart its waning economic recovery.
There is no scheduled announcement of any economic data or corporate highlights on the local scene this week. News flows in foreign countries and their market movements, especially in the US, are going to be the deciding factors for the FBM KLCI’s direction this week. The US will release some of its forward indicators such as housing data, building permits and leading indices this week. Initial estimates are pointing towards further month-on-month expansion and the data are not expected to disappoint. The Federal Reserve will announce its rate decision on Thursday, which is likely to be maintained.
In the absence of positive leads, the local market could consolidate further this week. Investors should regard it as a good opportunity to nibble for undervalued high beta plays and defensive stocks that have some growth prospects for a possible rally in the first half next year.
The rally is underpinned by double-digit earnings growth, strong liquidity on the back of the low interest rate environment that sustains interest in high yielding asset classes, ringgit strengthening vis-à-vis the US dollar that will attract foreign capital, robust domestic demand and a recovery in CPO prices in the first quarter of 2010. Malaysia’s current low foreign shareholding is a boon as Bursa Malaysia’s latest October trade statistics are already showing a reversal in trend with foreigners becoming net buyers for the month. Watch out for downside risks in the second half of next year, mainly caused by the unwinding of dollar carry trades and setbacks in government exit strategies.
Speculative interest in some counters linked to the Naza Group could become lively this week with the company planning to hold a press conference to elaborate on its plan with regard to development of a RM15 billion project on Jalan Duta, Kuala Lumpur. While contractors and building material players will benefit from this project, worries about oversupply could affect share prices of other property counters that have heavy presence in the Klang Valley. It is a trading opportunity.
Technical outlook
Stocks sustained losses in the early part of last week with the benchmark blue-chip index closing at the day’s low for three consecutive days, dampened by late profit-taking of blue chips and negative external leads. Concerns over further sovereign credit rating downgrades by the top rating agencies added to the gloom, following a downgrade of Greece and Spain last week.
The market staged a mild technical rebound on Thursday due to the oversold technical condition, but failed to make much headway due to weak buying momentum, negative market breadth and further regional falls. Lacklustre trading persisted ahead of the weekend with stocks stuck in sideways or rangebound trade as interest dwindled.
The FBM KLCI dipped from a high of 1,271.24 early Monday to a low of 1,255.76 at Wednesday’s close following a three-day sell-down, contracting to a 15.48-point trading range last week, compared with the 24.88-point trading range the previous week.
The daily slow stochastics momentum indicator for the FBM KLCI is now in bearish mode following a sell signal last week, while the weekly indicator has come off the overbought region after triggering a sell last week. The 14-day Relative Strength Index (RSI) indicator has dipped below the mid-point for a reading of 47.2, while the 14-week RSI has dipped below the 70-point mark to signal a sell.
Meantime, the daily Moving Average Convergence Divergence (MACD) trend indicator retained its bearish signal, while the weekly MACD trigger line expanded lower following the previous week’s sell signal. As for the 14-day Directional Movement Index (DMI) trend indicator, the ADX line weakened further to a non-trending reading at 20.84 as of last Friday, with the +DI and –DI lines levelling further to signal a trendless market.
Conclusion
Given the further deterioration in the technical indicators for the FBM KLCI, expect further sideways or rangebound trading this week, with the Awal Muharam holiday-shortened week likely to see most investors and market players staying away. The absence of positive domestic leads, and caution over the continuing volatility in global markets will also discourage investor participation ahead of the year-end.
Immediate resistance for the index is envisioned at 1,267, the 38.2 per cent Fibonacci Retracement (FR) of the rally from the 1,233 low of November 2 to the November 17 high of 1,288, with next upside hurdle expected at 1,275, the 23.6 per cent FR level. On the flipside, immediate support will be at 1,254, the 61.8 per cent FR level, while the November 30 low of 1,248 acting as a critical pivot support preventing further downside risk toward the 1,233 pivot low.
Chart-wise, remain cautious on core banking stocks AMMB, CIMB, Maybank and Public Bank, pending a more significant profit-taking correction which will then be a good buying opportunity to maximise medium-term upside potential. Continue to nibble gaming stock Genting Bhd for medium-term upside as sentiment should improve towards the opening of Resorts World Singapore next year.
As for lower liners, further corrections in construction-related stocks such as MRCB, Tebrau, UEM Land and Zelan will be a good buying opportunity for technical rebound ahead.
~~BusinessTimes~~