DESPITE the drop on the KLSE Composite Index (CI) lately, the majority of strategists and investment analysts still do not think that the “party” on the KLSE has ended.
Many still peg their year-end target for the CI at between 780 and 800. But they do expect the CI to be choppy in the current quarter, normally a weak quarter.
The CI had been heading south after reaching a 10-month high of 730 points on July 7.
Trading volume on the KLSE had also been diminishing, falling to a daily average of 540 million shares this week, compared with 700 million in the preceding week, when 1.4 billion shares changed hands on July 15. The benchmark index fell 4.5 points or 0.8% to finish the week at 710.5 yesterday, after hitting a low of 705 on Thursday.
AmResearch executive director Gan Kim Khoon, while maintaining his year-end target at 780, cautioned that unless big institutional investors raised their equity investment level, the stock market would run the risk of losing steam in the next few weeks or months.
After impressive gains of nearly 15% in three months, SBB Securities said, the market had become choppy and selective.
“We expect a deeper descent, noting that the market has handled bad news with surprising composure in recent weeks,'' said SBB Securities.
The optimism of the CI reaching the high year-end target mainly comes from the rising confidence that the economy, both global and domestic, will recover in the remainder of the year and will perform even better next year, barring any unforeseen circumstances.
Many economists and analysts concur that the economic recovery in the US, the world's largest economy, will help to feed the growth in its trading partners' economies.
AmResearch's Gan said the factors that led the rally in May were still present and were still valid reasons.
Real economic recovery would be the principal driver for the KLSE to head higher, he said, adding that positive factors for stronger growth in the second half of the year were present now.
“Everything – from fiscal stimulus policies to accommodative monetary policies to friendlier foreign direct investment policies – is falling into place, and this combination of factors will serve as fuel to business and consumer spending,'' he said in the latest quarterly research note.
Chartists describe the current trend as a healthy consolidation, given that positive news flow has slowed down.
TA Securities technical analysts Stephen Soo said the CI would move sideways in the coming week.
He expects the 690-level to be a critical support level for the CI, and 700 points would be just a psychological support should the benchmark index dip below 705 points.
Nonetheless, some are of the view that the market may stage a technical rebound in the coming week.
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