BURSA Malaysia shares managed to bounce back from losses last week due to geopolitical tensions in the Middle East and Ukraine, assisted by regional strength after a surprisingly strong HSBC flash survey that showed China’s factory activity expanded at its fastest pace in 18 months in July.
Increased rotational trading interest in small caps and penny stocks, together with newly-listed initial public offerings Sasbadi Holdings and Heng Huat Resources provided some respite to highlight dull trading ahead of the long Hari Raya Aidilfitri festival break.
For the week, the blue-chip benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) recouped 4.37 points, or 0.23 per cent, to 1,877.34, with gains on Genting Bhd (+20 sen), BAT (+RM2.78) and TNB (+12 sen), offsetting falls on Petronas Dagangan (-RM1.68) and Public Bank (-14 sen).
Average daily traded volume and value last week was at 2.21 billion shares and RM1.98 billion, compared with 2.28 billion shares and RM2.25 billion, respectively, the previous week, with trading momentum still robust and focused on small-cap stocks.
Trading activity on the local bourse is expected to drift in this holiday-shortened week.
The market is expected to be light on volume, especially in blue chips, and interest in small caps, and speculative plays could sustain as investors continue to seek higher returns in this valuations-stretched market.
No doubt market volatility would increase as we move forward into the second half of the year, as speculations about monetary tightening in the United States will undermine foreign fund inflows and trigger worries about the timing of outflows.
Considering that the cumulative net foreign inflows into the market in 2012 and last year amounted to RM16.1 billion and net foreign outflows only amounted to RM1.5 billion as at end-June, the volatility in blue chips with high foreign ownership should be greater than the relatively undervalued small and mid-cap plays with minimal or zero foreign interests.
As such, investing in overweight sectors like oil and gas (O&G) and Plantations and Technology could be viable for alpha-seekers in the long-term. Some stocks that come to mind are Pantech, Perisai Petroleum, United Malacca and Unisem.
That aside, the undertone of the US Federal Reserve policy meeting tomorrow and Wednesday could influence the direction of global financial markets this week.
The market has already factored in another US$10 billion (RM31.8 billion) cut is asset purchases and is keen to know the tools that the Fed will use to raise the short-term interest rates (such as federal funds rate, statutory reserve requirement or reverse repo facility) in the future to judge its efficacy.
Besides, there will be a slew of announcements on important US economic numbers this week such as Markit US manufacturing purchasing managers index (PMI), pending home sales, ADP employment, second quarter gross domestic product (GDP), core personal consumption expenditure, Institute for Supply Management manufacturing and labour force participation rate that will be closely watched. China also will release its manufacturing PMI this Friday.
Technical Outlook
The local stock market extended correction last Monday, with increased geopolitical tensions after the MAS flight MH17 tragedy clouding market sentiment.
The FBM KLCI shed another 4.33 points to settle at 1,868.64, off an early high of 1,876.83 and low of 1,867.34, as losers edged gainers 451 to 400 on active trade which totalled 2.4 billion shares worth RM2.14 billion. Shares staged a mild recovery the next day, aided by the rebound in regional markets as geopolitical concerns in eastern Ukraine and the Gaza strip eased following new developments overnight.
The FBM KLCI added 2.72 points to close at 1,871,36 off a high of 1,874 and low of 1,868.03, as gainers led losers 471 to 383 on trade totalling 2.56 billion shares worth RM2 billion.
The local market stayed rangebound on cautious trade last Wednesday while new-listing Sasbadi Holdings provided some excitement on an otherwise lacklustre trading day and most regional markets closed higher for a second session, thanks to a positive lead from Wall Street overnight.
The FBM KLCI ended flat at 1,871.83 (+0.47), off an early high of 1,873.70 and low of 1,869.39, as gainers beat losers 468 to 393 on trade totalling 2.32 billion shares worth RM2 billion.
Blue chips bounced back the subsequent day, boosted by regional strength after a surprisingly strong HSBC flash survey that showed China’s factory activity expanded at its fastest pace in 18 months in July as new orders surged.
The key index rose 5.22 points to close at the day’s high of 1,877.05, off an early low of 1,867.78, but losers edged gainers 436 to 425 on slower trade totalling 2.03 billion shares worth RM1.99 billion.
While blue chips extended rangebound trade on Friday, rotational trading interest on small caps and penny stocks sustained with newly-listed IPO Heng Huat Resources highlighting a dull trading session ahead of the long Hari Raya Aidil Fitri festival break.
The index closed flat at 1,877.34 (+0.29), off an early high of 1,879.59 and low of 1,868.14, as gainers edged losers 420 to 406 on cautious trade which totalled 1.7 billion shares worth RM1.6 billion.
Trading range for the local blue-chip benchmark index expanded to 12.25 points last week, compared with the 23.62 points range the previous week, as blue-chip heavyweights congested near one-month lows to rebuild stronger support. The FBM Emas Index rose 48.17 points, or 0.37 per cent, last week to 13,110.91, while the FBM-Small Cap Index soared 352.92 points, or 1.9 per cent to 18,963.91, as small-cap stocks continued to attract strong rotational buying interest from retailers.
A hook-up buy signal was triggered on the daily slow stochastic momentum indicator from the oversold region following last week’s late rebound on the index, but the weekly indicator retained its bearish momentum as the signal line extended lower.
The 14-day Relative Strength Index (RSI) indicator recovered mildly to a better reading of 47.63, while the 14-week RSI re-hooked upwards for an improved reading at 59.03.
However, the daily Moving Average Convergence Divergence (MACD) trend indicator extended its bearish reading despite last week’s mild rebound, while the weekly MACD expanded bearishly to suggest further losses ahead. The 14-day Directional Movement Index (DMI) trend indicator retained its bearish signal, but the +DI and -DI lines have narrowed towards each other to indicate weaker downside momentum.
Conclusion
Save for the buy signal on the daily slow stochastics indicator for the FBM KLCI, most other technical indicators being tracked are either neutral or still bearish, suggesting that last week’s recovery is prone to further correction. Nonetheless, expect downside to be contained this week due to the much-reduced investor participation, given the shortened three-day trading week as most investors are likely to be away on holidays.
On the index, key chart support cushioning downside would still be at the 100-day moving average level at 1,863, while better uptrend support is at the crucial 200-day moving average level at 1,839.
On the upside, immediate resistance is retained at the 30-day moving average level at 1,882, while more significant hurdles remain at 1,900 and 1,934, the 123.6 per cent Fibonacci Projection of the rally from 1,660 low of August 28 to the 1,882 high of December 31 last year.
Chartwise, second liner construction, property and O&G stocks such as Ahmad Zaki Resources Bhd, Glomac, Hua Yang, Mah Sing, Malaysian Resources Corp Bhd, UEM Sunrise, Perdana Petroleum and Wah Seong are favoured to outperform in the longer term.
Meanwhile, this columnist would like to take this opportunity to wish all Muslims “Selamat Hari Raya Aidilfitri”.