REVIEW: The first trading week of 2018 was awash with the good graces of “synchronised global growth” and net foreign inflows, coming fresh off a positive year of foreign investment in local equity.
Indeed, reports show that Malaysia recorded a net inflow of foreign funds into equities amounting to RM10.33bil in 2017, the highest since 2012.
Barring a spate of profit-taking in the first day of the trading year, the FBM KLCI sustained its upward momentum and breached the 1,800 key level by Thursday.
The net inflow of foreign funds throughout the trading week, including Tuesday which saw a pullback by local institutions, is good indication of confidence in Malaysia’s equity market.
At Tuesday’s open, China was a confidence booster as its manufacturing data showed expansion and economic growth. The rise in mainland shares had a knock-on effect on Hong Kong, which pushed the Hang Seng Index past the 30,000 mark.
Oil prices also took a bullish run into 2018. The resumption of production at the North Sea Forties and Libyan pipelines was not enough to offset the effect of falling oil inventories and the prospect of increased consumption by growing economies.
Against the backdrop of growing civil unrest in Iran, oil prices had spiked to 2015 highs on Dec 29 in New York trading. West Texas Intermediate crude pushed past the US$60 a barrel mark while Brent inched closer to US$67.
The FBM KLCI, however, saw local institutions cashing in on the previous week’s gains, retreating about 14 points to 1,782.70 on heavy selling in counters such as Sime Darby Plantation and Digi. The plantation counter fell 51 sen, erasing nearly all the gains it had made in the previous session.
Later that evening, Wall Street set the stage for a strong midweek performance in global markets with the Nasdaq breaking the 7,000-point hurdle to set a new record. Wind was poured into investors’ sails and Asian equities rose to a decade peak.
The local market was no different, with foreign investors stepping up their purchase of Malaysian equity and turning net buyers to the tune of RM310mil. Turnover on Wednesday was impressive, with 5.11 billion shares traded to the tune of RM3.67bil in value.
There were also new developments brewing at the US Federal Reserve, with meeting minutes released suggesting the Fed was concerned about inflationary rates and whether it should adopt more aggressive interest rate hikes in 2018.
On this news, the ringgit faltered slightly on Thursday’s opening bell but picked up by afternoon trading and breached the 4.0 level against the greenback in overnight trading.
Bursa Malaysia continued its ascent as well, firming up to 1,803.45 points while global markets enjoyed another fruitful day of gains as China showed an expansion in its services sector.
The local market turned in another day of active trading with 5.05 billion shares worth RM3.28bil exchanging hands.
Overnight, there was further good news on the Western front as the Dow Jones Index soared past the 25,000-point milestone to record a new high.
On Friday, Malaysian authorities reported that exports in November 2017 expanded 14.4% on-year to the highest monthly export value ever recorded while capital imports also grew, suggesting economic growth.
The local market rally continued, rising 12 points in the first 30 minutes of trading. By market close, it was 14.52 points higher at 1,817.97 points. Turnover was 5.83 billion shares worth RM3.94bil, the highest recorded figure for the week.
Statistics: Week-on-week, the major index was up 21.16 points, or 1.2% to 1,817.97 points yesterday, versus 1,796.81 points on Dec 29. Total turnover for the week stood at 19.69 billion shares amounting to RM13.01bil, compared with 10.16 billion units valued at RM8.46bil exchanging hands the prior week.
Outlook: The confluence of positives for the domestic market served to reinforce the continuation of the rally this past week.
The technical indicators remain in bullish mode with the falling slow-stochastic returning to an upwards trajectory before crossing into neutral territory.
This sharp and decisive “U-turn” in the direction of the slow-stochastic in overbought territory is a rare occurrence for the KLCI, but suggests the rally has legs.
Other indicators, such as the daily moving average convergence/divergence histogram show an unabating bull trend.
Given the promise of the technical landscape, the market can be expected to trade along the existing uptrend although the growing overbought conditions may see some investors opting out to give the index a more staggered result.
Sentiment in the market remains high, bolstered by strength in both oil and ringgit, as well as the promise of economic growth. Even geopolitics has showed a smoothening out of tensions, with the latest being Pyongyang accepting an invitation by Seoul to dicuss the Winter Olympics.
The KLCI is now within striking distance of the next resistance of 1,825 points, with a view to crossing over to 1,850. A correction will see the index dip into the 1,800 level, and 1,785 below that.
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