Listless, downside bias market in sight

  • Business
  • Saturday, 04 Aug 2012

REVIEW: Over the week, Bursa Malaysia traded in a somewhat uninspiring fashion as the Olympics Games in London commenced to command the attention of the world.

With uncertainty and the lack of positive newsflow coming up to prop the local market, trading momentum mirrored that sentiment, with the FBM KLCI gaining 10.1 points to 1,635.04 with volumes ranging between RM1.1bil and RM1.5bil over the week.

Noteworthy is that foreign investors bought RM3.3bil of Malaysian stocks in July, down from RM2.5bil in June, according to Bursa Malaysia.

Stocks such as Fraser & Neave Holdings Bhd, Petronas Gas Bhd and Dutch Lady Bhd hogged the gainers list, while the likes of Patimas Computers Bhd, Iris Corp Bhd and Bio Osmo Bhd were being actively traded on the volumes list. Gains on stocks were mostly feeble.

Selling pressure was persistent in Felda Global Ventures Bhd, with the stock retracing from its high of RM5.55 achieved during its listing in early July, to close at the RM5.05 level.

Hogging the headlines was Bandar Raya Developments Bhd (BRDB), which reached its highest level in almost four years following announcement that its major shareholder may offer to buy out the company at RM2.90 per share and RM1.80 per warrant. The stock hit an intra-day high of RM2.76 on Tuesday before settling at the RM2.65 level on Friday.

“We believe that a trading mode has appeared for these low Beta stocks which seem to be on a buying interest mode for a few days and then a single day of profit taking before the trend repeats.

“There is room for arbitrage with the ebb and flow of the market under the current eurozone driven newsflow,” said M&A Securities.

Financial markets reacted on Thursday after the European Central Bank (ECB) president Mario Draghi said that eurozone governments should look to existing rescue funds before any mediation by the ECB in bond markets to buttress Europe's monetary union. The ECB left interest rates unchanged at 0.75%.

Draghi said the ECB “may consider” again buying short-term government debt, but would expect “strict and effective conditionality” to be imposed by the European Financial Stability Facility.

His comments reflect a dogged conviction to not repeat the ECB's bond buying activities last year, which resulted in the ECB acquiring 212 billion euros of stressed debt from eurozone countries, but failed to stop the crisis expanding.

Strategy: Jupiter Securities chief market strategist Benny Lee would advise investors to trade cautiously.

“The index will be moving sideways for the time being. Those with long-term holdings can continue holding on, as the market is supported quite well. However over the short term, for those looking to buy, I would advise them to wait, as I am expecting more pullbacks to come,” says Lee.

Looking at the market, Lee says that it is quite obvious that the blue chips are well supported, but the same cannot be said about the lower liners.

“Many of them are giving up gains, and hence I don't recommend bargain hunting yet,” says Lee.

He sees an immediate rersistance at the 1,635 level, while the support level is at the 1,605 level.

Senior technical analyst Stephen Soo says that financial markets are disappointed with the anti-climax news by the ECB. He is expecting the short-term trend of the market to be listless with more downside bias. Soo adds that in the last 22 years, August has proven to be a negative month for equities, with the month typically retracing by 3%.

“From a chart perspective, the market has peaked in the short term. I would advise investors to wait for the 1,590 level before starting to buy again. For now if the market goes up, I would recommend to sell into rallies,” says Soo.

He sees the immediate upside being capped at the 1,635 level, while a progressing resistance will be felt at the 1,647 level. Meanwhile, the support level is seen at the 1,622 level, which is also the 30 day moving average. A stronger buying foundation wil be felt at the 1,600 level.

Soo felt that the next possible catalyst could be in September, as investors are anticipating a qualitative easing 3 to further boost the market and flood the system with liquidity.

Most economists expect the Federal Reserves to launch a third round of bond purchases, possibly at its next policy meeting on Sept 12 to 13. US jobless claims rose 8,000 in the Jul 28 week to 365,000 from a revised 357,000 in the earlier week. Economists were expecting a rise to 370,000. US factory orders fell 0.5% month on month in June, undershooting consensus estimates of an increase of 0.7%.

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