THE local bourse's key benchmark FBM KLCI shed 7.08 points or 0.45% to close at 1,573.59 on the last trading day of the week, snapping six days of gains and reflecting investors' caution on renewed worries over the eurozone sovereign debt crisis.
However, the key index seems to have held up against markets in the region with analysts pointing out that despite foreign funds selling, local funds have stepped in to support the market by buying into key bluechip stocks.
They also say that equities trading will be characterised by volatility until June 17, when the Greek elections are held again following the failure to form a government after the elections last month.
Maybank Investment Bank Bhd head of retail research Lee Cheng Hooi tells StarBizWeek the stronger short-term performance of the local bourse is due to local funds buying into key bluechip stocks as foreign funds sold down their stakes.
He says this may be to support market sentiment in the run-up to the impending listing of several government-related companies together with speculation over the 13th general election (GE13).
“I can't think of any other reasons for the performance of the local bourse in the past few weeks, the market here has its own agenda,” Lee adds.
Another anticipated listing is that of Intergrated Healthcare Holdings Sdn Bhd, which will be listed on the Kuala Lumpur and Singapore stock exchanges by the end of July.
Lee says as a consequence of foreign fund redemptions, the ringgit has been really weak over the last 12 trading days.
“The region is on risk-off trade mode (selling of equities, oil and gold) with the foreign funds taking up positions in US Treasuries,” he says.
Indeed, the strength of the greenback and the yen in recent weeks reflects the move to US and Japanese government bonds, where yields have fallen.
The ringgit closed at 3.193 to the US dollar yesterday, up 6.66% since end-February, when the US dollar was at its weakest for the year.
Lee says the FBM KLCI has settled somewhere in the middle of the range when compared with April.
“That has alleviated some of the negativity from the market,” he says.
“The critical level for the FBM KLCI is at 1,556 to 1,566. Resistance levels will be found at 1,576, 1,586 and 1,609,” he adds.
Meanwhile, MIDF Amanah Asset Management Bhd chief executive officer Scott Lim says another reason for why the local market has been stronger over the last few weeks may be the window dressing activities going on among certain of the funds.
“Watch for any resolution on the debt crisis, eventually everybody will be forced to do something because right now there's only talk and too little action on the part of the European Central Bank (ECB),” he says, adding that there are some positive signs going into the second-half of the year.
“There'll be entry-point opportunities then,” Lim says.
He points out that the ECB will be forced to cut rates which now stands at 1% as it does not make sense to keep rates higher relative to the US Federal Reserve's federal funds rate and the Bank of England's rates when there is no risk of inflation and growth is now the priority.
The Fed has kept the benchmark rates at a target range of between 0% and 0.25% and the Bank of England has kept rates at 0.5%.
Furthermore, Lim believes that there will be a third round of quantitative easing when the second round of quantitative easing ends on June 30.
This is because recent economic data points to the recovery of the US economy being fragile while policymakers will likely take note of the resurgent debt crisis. “They'll have to start looking at it seriously,” he says.
On commodities, Lim advises investors to be watchful of price movements across the board. “Hard commodities are teetering on support levels,” he says. For gold, the psychological level is US$1,500 an ounce while for crude palm oil (CPO), prices above RM3,000 per tonne is still good. “However, all commodities could be taking a turn together, so be watchful of that,” Lim says.
For Malaysia, he feels that Bank Negara will be mulling a cut in the overnight policy rate, which stands at 3%, in the second-half of this year. “For Asia, exports remain weak so there'll be a need to stimulate the domestic sectors,” Lim adds.
He says the dollar will remain on an uptrend for the rest of the year. “This is not necessarily a bad thing as exports are usually traded in dollars, so exporters will gain when they convert to local currency,” Lim says.
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