INVESTORS STAY SIDELINED: Nevertheless,Oil and gas related stocks likely to attract active retail participation
The Malaysian share market staged a relief rebound last week, encouraged by the last-minute deal by the United States Congress to reopen the federal government and raise the debt ceiling. However, profit-taking and selling-on-strength following confirmation of the deal forced the blue-chip benchmark index to ease back from a one-month high.
The blue-chip benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) added 13.84 points, or 0.78 per cent, to settle last week at 1,785.75, with Public Bank (+26 sen), SapuraKencana Petroleum (+15 sen), Petronas Gas (+50 sen) and Tenaga Nasional (+10 sen), accounting for slightly more than half of the index's gain. Average daily traded volume and value dwindled further to 1.54 billion shares and RM1.68 billion, compared to the 1.67 billion shares and RM1.45 billion respectively the previous week.
The US Congress' decision to postpone today's problems to tomorrow was within wildly held expectations. Thus, the relief rally should be short-lived as the focus shifts to the impact of the 16-day government shutdown and what happens next in the first quarter of 2014.
The good thing is that the emerging markets can breathe a sigh of relief now that the foreign funds outflow that we witnessed in the third quarter would not recur anytime soon with possibilities of a US Fed tapering in December or next January appear slim now. Considering that the new US Fed chairwoman Janet Yellen will be sworn in officially in February next year, anticipation is building up for any eventual cut in liquidity only in March.
Although the FBM KLCI is the second most expensive market in this region after the Philippines, the participation of government-linked funds in select blue chips could sustain its resilience in the absence of any big selling from foreigners. Chances of advancing further should be highly correlated with strong corporate earnings growth potential, but that prospects appear dim in the immediate term.
With the 2014 Budget that will be revealed this Friday expected to eschew unnecessary spending and focus on subsidy cuts and measures that would reduce budget deficit to escape the wrath of rating agencies, which have raised concerns about rising debts and possible twin deficits, corporate profit margin will come under pressure in the short term with rising cost pressures.
However, as measures to reign in deficit and increase our revenue base are positive to improve our credit rating in the long run, corporates should enhance their competitiveness in handling resources, nurturing innovations and improving productivity to emerge as winners eventually. The same applies to the wider population in adjusting their spending habits as the government introduces non-popular measures, like the broad-based goods and services tax (GST), to raise government revenue. At the same token, the government needs to be more transparent and accountable in ensuring the additional revenue collected/subsidies saved are spent wisely.
As for the benchmark index, anticipate sideway congestions this week as investors await the outcome of 2014 Budget. Leaner measures against expectations, especially involving the property sector, could spark a rally in the property stocks, as most of them remained attractive after worries about property curbs kept a lid on share prices.
Construction and infrastructure players' standing could be reaffirmed with continuity in certain high-impact government projects, like the Klang Valley Mass Rapid Transit line 2 and the Southern double-tracking project. With external demand expected to remain not so robust, the government is not expected to impose excessive curbs on the above two sectors that are pivotal for domestic activities.
As the imposition of GST is likely to drive up property prices, there could be a rush to own one before the implementation, which is expected in second half of 2015. Thus, accumulate on weakness undervalued plays in the sectors like Gamuda, WCT, Naim, Sunway, Mah Sing and Glomac for rebound potentials. Technical Outlook
Spot month October futures increased nine points, or 0.5 per cent, last week to 1,798.5, reversing to a 1.1-point discount to cash, from the 3.75-point premium the previous Friday, as profit-taking and long liquidations picked up momentum following the reopening of the US federal government and resolution of the US debt ceiling.
Blue chips ended flat amid cautious range bound trade on Monday, with most investors sidelined ahead of the Hari Raya Haji holiday and caution over the prolonged US government shutdown and debt limit talks. The FBM KLCI eased one point to settle at 1,784.76, off an opening low of 1,775.11 and high of 1,788.53, as losers beat gainers 419 to 309 on slow trade totalling 1.32 billion shares worth RM1.04 billion.
Ignoring the cautious external tone, the local blue chips ended higher on Wednesday on hopes the US Senate would conclude a last-minute deal to raise the debt ceiling and avert a default ahead of the deadline, and reopen the government. The FBM KLCI closed 6.6 points up at 1,791.37, off an opening low of 1,786.1 and high of 1,795.48, as gainers edged losers 395 to 374 on cautious trade totalling 1.62 billion shares worth RM1.88 billion.
Stocks extended gains on Thursday after the US Congress reached an agreement to end the government shutdown and raise the debt ceiling, with oil and gas related stocks leading gains on more positive market breadth. The FBM KLCI rose another 6.05 points to end at 1,797.42, off an early high of 1,802.57 and low of 1,796.10 in late trade as gainers led losers 478 to 298 on improved trade totalling 1.73 billion shares worth RM1.74 billion.
Profit-taking ahead of the weekend forced blue chips to end off earlier highs, following the relief rebound sparked by the confirmation of an end to the US government shutdown and deal to extend the debt ceiling to early next year. The index ended 2.17 points up at 1,799.59 on Friday, off an early high of 1,805 and low of 1,795.95, as gainers edged losers 377 to 331 on slower trade of 1.49 billion shares worth RM2.04 billion.
Trading range for the local blue-chip benchmark index flattened at 20.24 points last week, compared to the 20.35 points range the previous week, as blue chips extended their sideways consolidation mode. The FBM-Emas Index gained 99.51 points, or 0.8 per cent, to 12,531.17 for the week, while the FBM-Small Cap Index added 92.5 points, or 0.6 per cent, to 15,594.8, as small cap stocks latched on further gains on sustained retailers buying interest.
The daily slow stochastic indicator for the FBM KLCI is overbought following last week's gains, mirroring the overbought position on the weekly indicator. The 14-day Relative Strength Index (RSI) indicator climbed to a higher reading of 65.36 as of last Friday, while the 14-week RSI registered an improved reading of 60.34.
As for trend indicators, the daily Moving Average Convergence Divergence (MACD) registered a bullish expansion after triggering a buy early last week, while the weekly MACD signal line has hooked up to indicate bullish potential. The 14-day Directional Movement Index trend indicator's +DI and -DI continued their bullish expansion from each other but on a flattening ADX line, suggesting non-trending mode yet.Conclusion
Given overbought signals generated by the daily and weekly stochastics for the FBM KLCI, blue chips are likely to fall for profit-taking as they consolidate recent gains.
Caution ahead of the 2014 Budget announcement is likely to see a sideways trend this week as investors stay sidelined pending revelations of the contents on Friday. Oil and gas related stocks are likely to attract active retail participation, given the recent strong buying momentum while blue chips congest.
Immediate upside for the index remains capped at 1,805, the September 20 peak, with a decisive breakout needed to target next higher hurdles from the July pivot high of 1,811 and all-time high of 1,826.
Immediate support stays at the 10-day moving average at 1,783, followed by 1,773, the 30-day moving average and stronger support from 1,763, the 50-day moving average.The subject
expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.