KLCI returns to the bulls

Review: Coming out of the Chinese New Year (CNY) holidays on Monday, the equities market was ready to catch up to the positive performance by Wall Street the previous week.

Retracing between 4.25% and 5.3% over the previous week, the Dow Jones, Nasdaq and S&P500 lent confidence that the correction was a brief blip on the radar.

The bulls took their cue at the week’s open and returned with foreign investment dollars to the local market, giving a running start to the new zodiac year. A strong 19-point gain put the FBM KLCI on more bullish footing, and above the 1,850 level.

The push came in tandem with other regional markets such as Japan, whose Nikkei posted a 2% gain as global markets shrugged off anxieties over inflation and tightening liquidity.

While Malaysian investors were still looking for fresh leads on the local scene following the long weekend, few were forthcoming from the international markets as the United States was shuttered that night for the President’s Day holiday, leaving Asia without a lead for the next session.

The regional markets took a breather on Tuesday, taking some money off the table following the previous session’s strong performance.

The local benchmark index followed suit and made a slight loss of 1.33 points to 1,855.99. However, despite the lull, watchful investors were also on alert for corporate news given the looming earnings results.

The slowdown in corporate activity around the festive period meant a barrage of results were due within the final stretch to Feb 28.

The midweek showed positive sentiment over the earnings season. Despite Wall Street’s overnight pullback – triggered by an earnings slump by Walmart – the local bourse shrugged off the negative news to pull ahead.

Earnings announced the previous day from blue chips such as Petronas Chemicals and Nestle served to add points to the FBM KLCI even as positive expectations for heavyweight banking stocks such as Maybank and Public Bank lifted it higher.

Starting off morning trade in the red, the FBM KLCI ramped up over the course of the day to put in a positive result of 2.18 points to 1,858.17.

Despite healthy anticipation on the local market, anxiety in the United States loomed overnight on continued concern over the possibility of US interest rate hikes. The worries were backed by the minutes to the US Federal Reserve’s last policy meeting, which showed the prospects of faster economic growth due to fiscal stimulus.

The three major indices on Wall Street dipped between 0.2% and 0.7%, lending weight to a pullback in Asia.

At Thursday’s open, the FBM KLCI traded largely in the red, despite a record-breaking full-year performance by Public Bank, which helped to pool some confidence in the earnings season.

However, Hong Leong Bank and MISC weighed for the session ahead of their announcements, leading the index 3.1 points lower to 1,855.07 but still holding steady above the 1,850 support.

On Friday, Public Bank hit a fresh all-time-high, lifting the index to 1,861.50

During the week, Asian currencies, including the ringgit, retreated against the US dollar as it strengthened on the back of rising US Treasury yields.

The local currency lost some of the gains it had made over the greenback, slipping back to a low of 3.91 from 3.89 since the early noon-closing the previous Thursday.

The rebound in the US dollar also put pressure on oil prices. US light crude hovered above US$62 a barrel while Brent crude, which been on a positive retracement over the previous week, stood near US$66.

Statistics: For the week, the major index was up 23.22 points, or 1.3% to 1,861.50 points on Friday, versus 1,838.28 on Feb 15. Total turnover for the trading week stood at 12.8 billion shares amounting to RM11.26bil, compared with 6.47 billion units valued at RM7.76bil changing hands over the shortened pre-CNY trading week.

Outlook: Despite looking bullish, the benchmark index took on some sideways movement following Monday’s strong performance. While it held well above the 1,850 support line, it was contained below the 1,865 resistance and, from Tuesday through Friday, traded within an 11-point range.

Some indecision and sluggishness may have entered the market following the return to the normal trading week post-CNY, and with many more earnings results to come in the days ahead, investors may yet be looking for a sense of direction.

The “tug of war” between US Treasury yields and equities will continue, with attention turned towards Jerome Powell making his first public appearance as Fed chairman next Wednesday. His economic testimony may help shed some light onto the future direction of Fed policy.

The technical indicators for the FBM KLCI showed middling strength. The daily moving average convergence/divergence remained in positive territory and on the verge of a bullish crossing with the signal line, suggesting continued upwards bias. Given both earnings and Stateside news coming into play next week, there may be new catalysts to break the indecision keeping the market in consolidation.