Review: With regard to the highly anticipated year-end rally on the equities market, investors weren’t disappointed and got what they had been hoping for.
Trading volumes remained healthy on Bursa Malaysia and momentum on the FBM KLCI picked up going into the final leg of 2017.
The rally kept in step with tradition as the market tends to move higher towards the new year. There were also indications that this could be an election-inspired rally, giving a boost to key stocks.
However, the feel-good factor of the year-end was not unique to the Malaysian market as the MSCI AC Asia Pacific Index rose to a new record.
Coming out of the Christmas weekend on Tuesday, Asian markets were typically quiet and the FBM KLCI was no exception save for some investors taking profit in early and mid-morning trade.
But the index managed stay firm and ended the day’s session nearly on par, just 0.25 points lower at 1759.99 points.
There was more excitement on Wednesday, however, as the FBM KLCI jumped 11.77 points or two-thirds of a percent to 1,771.67 points. This saw the index surpass the key 1,765 resistance level, coming within striking distance of the 1,800-point target some analysts had forecast.
There were a few positive catalysts that helped the day’s market rally.
The local market, and Asian markets in general, saw an unexpected upside from the previous night in the form of a surge in oil prices as an explosion disrupted supply at a Libyan pipeline.
The incident rounded out a trio of supply pressures, on the heels of the UK North Sea pipeline leak and extended production cuts by the Organisation of the Petroleum Exporting Countries (Opec).
This brought oil prices to 2015 highs. Brent crude rallied to above US$66 a barrel while West Texas Intermediate crude rose to touch US$60.
Oil refiner Hengyuan, already the best-performing stock on Bursa Malaysia this year, reacted strongly to the news, gaining 24% over three days before investors stopped to take profit on Friday.
Coupled with a rally in copper prices, Asian commodity exporters had reason to celebrate.
Also on Wednesday, it was announced that 1 Malaysia Development Bhd (1MDB) had made its final repayment to International Petroleum Investment Company PJSC (IPIC) ahead of its deadline.
While observers note that the negative investor sentiment over the 1MDB fallout had passed, or had been priced in, the repayment could only be positively received on both political and investment fronts.
Confirmation of a sustained rally came on Thursday, as the index dipped in early trade but reversed gears to ratchet up 7.34 points to 1,779.10 points by the day’s close. Tenaga Nasional and banking stocks lifted the index.
The ringgit strengthened further as the greenback faltered on a decline in US Treasury yields after consumer confidence retreated in December from 17-year highs in November.
And on further good news for oil exporters, the drawdown on US oil inventories by refiners had picked up pace, shoring up oil prices at their newly elevated levels.
On Friday, the market hovered at the 1,780 level before making a final push in the closing minutes to end at 1,796.81. Sime Darby Plantation, Maybank and Digi lifted the index by about 13.5 points.
Statistics: On a Friday-to-Friday basis, the major index was up 36.57 points or 2.1% to 1,796.81 yesterday, versus 1,760.24 on Dec 22. Total turnover for the four-day trading week stood at 10.16 billion shares amounting to RM8.46bil, compared with 12.23 billion shares valued at RM10.94bil exchanging hands the previous week.
Outlook: The rally over this past week served to push past the weakness seen in the market from mid-September to mid-December. Bursa Malaysia as a whole was lifted; the FBM 100 Index showed a 4.7% gain from Dec 11 to the year-end, while the FBM Small Cap Index recorded a 2.8% gain over the same two-week period. In comparison, the KLCI put on about 4.3%. Year-on-year, the benchmark index gained 155.08 points or 9.4%.
Some profit-taking is to be expected following such a strong rally, with the slow-stochastic looking poised to give a “sell” signal from the extended overbought condition of 97 points.
This coincides with the little time left before the market hits the Chinese New Year period in February and the general election, expected to follow closely behind.
For oil prices, there will need to be fresh catalysts before it can move forward. With disruptions to the Libyan and North Sea pipelines expected to be remedied by early January, there are indications of a correction in the books. The technical indicators are overbought and falling back into neutral territory.
The ringgit remains bullish and is expected by analysts to surpass the psychological 4.0 level, especially if Bank Negara raises interest rates in January as some expect. The bullish indicators also lend support to positive momentum.
The 1,800-point level poses as an immediate resistance to the FBM KLCI, with 1,825 as the next hurdle. On the lower end of the chart, support is pegged at 1,765 and 1,750.
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