REVIEW: Bursa Malaysia was one of the worst-performing markets in the region this week even as the headwinds continued to pile up. The latest developments from Europe especially roiled global markets with uncertainty.
While optimism over global growth was hampered by US President Donald Trump’s trade agenda, Italy’s electoral turmoil only exacerbated the flight to safe havens and fixed-income assets, creating an outflow in equities markets.
The US dollar index continued the rally it had been on since mid-April to 94.1 points while the Japanese yen strengthened about 2.3% to 82.08 against the Australian dollar over two weeks.
The start of the yen rally coincided with Trump’s statement on May 22 that he was not happy with the negotiations with China to resolve the trade dispute.
Back home, the Pakatan Harapan government continued to upend projects it deemed too expensive or “unnecessary”.
The scrapping of the KL-Singapore High-Speed Rail and Klang Valley Mass Rapid Transit 3 (MRT3) line projects meant the winning bidders of the mega projects suffered significant reductions to their valuations. The impact to counters such as Gamuda, George Kent and HSS Engineering led them to their bottom share price limits on the day of the announcements.
There were also repercussions for the wider construction sector as CIMB Research noted that about RM100bil in rail contracts have been cancelled. It said the effect would have widespread reverberations “to be felt from small to large caps and from contractors to building material providers”.
On Monday, the FBM KLCI erased gains it had made during a rebound on Friday as the global sentiment continued to sap foreign funds from the domestic market. Trading volume was muted with investors taking pause ahead of the Wesak Day holiday. The index closed 21.56 points lower at 1,775.84.
Overnight, while Wall Street was shuttered for a national holiday, the fallout in Italy sent the euro down and European equities retreating on fears that the currency bloc may be destabilised.
France’s CAC and Germany’s Dax slipped 0.6% each while the UK’s FTSE 100 was closed for a holiday. Italy’s FTSE MIB fell 2.1%.
Bursa Malaysia was closed for Wesak Day on Tuesday but reopened on Wednesday to bloodshed.
The market gapped down at the opening bell and began a steep decline. It fell as much as 66 points in intra-day trade to a low of 1,709 points.
Bank stocks worldwide took the biggest hit on fears of interest margins being squeezed by declining bond yields as investors sought safety in the asset. Maybank lost 43 sen to RM9.57, Public Bank fell 92 sen to RM23.98 and CIMB dropped 16 sen to RM5.90.
On the domestic front, news of the cancellation of the mega projects saw construction stocks tumble while energy major Tenaga Nasional also dove 64 sen to RM14.14.
By Thursday, investors initiated a relief rebound on global markets even as Italian politicians agreed to sit down for a way through the impasse. Tempering fears was also the growing realisation that there was no quick and easy exit from the euro bloc as reflected in Britain’s own struggles following the Brexit referendum.
Investors took the opportunity to bargain hunt on the local stock exchange. Bursa Malaysia posted the highest value of shares traded at over RM9bil, beating the previous record of RM7.3bil when the market reopened on May 14 following GE14. The FBM KLCI closed 21.34 points higher at 1,740.62.
At the week’s final stretch, Trump’s trade war began to escalate as Canada, Mexico and the EU announced they would retaliate against the US for its tax tariffs on imports.
However, the escalation was offset by relief as the Italian crisis seemed all but averted as the two populist parties agreed to terms to forming a ruling coalition. Yesterday, the FBM KLCI rose 15.76 points to 1,756.38.
Statistics: On a Friday-to-Friday basis, the major index was down 41.02 points, or 2.3%, to 1,756.38 points. Total turnover for the four-day trading week stood at 13.28 billion shares amounting to RM18.8bil compared to 12.9 billion shares worth RM15.96bil a week earlier.
Outlook: The deep dive on Bursa Malaysia looked to be overdone and a retracement is well underway. However, despite the partial recovery, foreign investors have remained at a distance as the growth story in this part of the world looks less compelling than it did at the start of the year.
The ringgit remains under pressure versus the US dollar while oil prices have also subsided as Opec seems intent on increasing supplies, given disruptions in Venezuela and Nigeria.
As reported by AmBank Investment Research, the corporate earnings season, which ended on May 31, bore overall less impressive results than in the preceding quarter, resulting in a downward revision of its FBM KLCI growth forecast for 2018.
Based on the technical indicators, the FBM KLCI remains on a bearish footing. While the slow-stochastic shows a return from an oversold condition, the index remains submerged below the key 1,800-point level, which meets the 50-day simple moving average. The immediate resistance is pegged at 1,775, while the support rests at 1,708.
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