IT looks like the FTSE Bursa Malaysia KL Composite Index (FBM KLCI) may build up on last week’s momentum supported by positive external news.
Over the week, the FBM KLCI gained 12 points to end Friday at 1,345.68 as global indices rallied on optimism that a global economic recovery could be underway.
Looking east, the Shanghai Index seems poised to test its psychological level of 2,600 points after four consecutive sessions of ascension. China shares have been soaring after the launch of its real estate tax was delayed. Typically, regional indices take their lead from Shanghai.
Stocks in the US have also been climbed as earnings and economic reports reassure investors that the economy is continuing to recover.
Meanwhile, oil prices jumped more than 3% to a 11-week high above US$79 as a potential tropical storm threatened energy installations in the Gulf of Mexico and strong earnings boosted investor sentiment.
For Malaysia, TA Securities technical chartist Stephen Soo is positive on the FBM KLCI for the short term and is anticipating the index to break out from its year’s high of 1,349 points.
“The retailers have re-entered the market after the World Cup. With the positive news on the external front and Bank Negara raising rates, there is growing confidence that the economy is recovering,” he said.
Soo is recomending retailers to take positions, particularly on the lower liners. He expects the penny stocks to outperform the blue chips.
Recently, the play has been on the consumer sector, with stocks such as COCOALAND HOLDINGS BHD and QSR Brands Bhd surging on a buoyant earnings outook. Biscuit producer HWA TAI INDUSTRIES BHD and chocolate manufacturer GUAN CHONG BHD have also been creating waves, as investors pick small consumer companies over the bigger food manufacturers.
“Overall, liquidity in the market has been improving. Newsflow has also become more positive,” said Soo.
He said if the 1,349-point level were taken out, the FBM KLCI should next head to the 1,370 and 1,392 levels. Support levels are at 1,325 and 1,309 points.
In Malaysia, the inflation rate in June accelerated at 1.7% year-on-year, mainly on higher food prices that edged to 0.9% from an average of 0.6% in the January-May period. Inflation averaged 1.6% in the first half of 2010.
With the recent 2.7% hike in the fuel prices, the transport component is expected to have a higher contribution to basket of goods and services that make up the overall consumer price index in the second half year.
“Nevertheless, the recent increment is unlikely to pose a significant threat for runaway inflation as the magnitude is relatively small compared with the previous hike of 40% in 2008,” said OSK Research.
Federal Reserve chairman Ben Bernanke said last week that the economic outlook was unusually uncertain and that it had weakened somewhat lately.
He added that the Fed would take steps to bolster the economy if the recovery remained sluggish and failed to create enough new jobs. But the Fed had no immediate plans to provide additional support to the economy just yet.
Bernanke outlined three monetary policy options to support the economy that would be considered if necessary. First, the Fed could emphasise that it intended to keep its benchmark federal funds rate at 0% to 0.25% for even longer than the “extended period” it had been projecting.
Second, the Fed could lower the interest rate it paid on reserves that banks kept at the central bank in excess of what they were required to. Theoretically, this would encourage more lending.
That rate currently stands at 0.25%. And the Fed could again expand its balance sheet, which stands at about US$2.3 trillion, by buying additional Treasury or mortgage-backed securities, or even other assets such as municipal bonds.
On the corporate front, trading in The New Straits Times Press (M) Bhd shares will be suspended from 9am on July 30. The company will be delisted from the main market now that holding company Media Prima Bhd has secured more than 90% of its listed shares.
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