Three factors that affect the market


 

REVIEW: The change of landscape – economic in Malaysia and political in the US – has kept investors on their toes in recent days, with guesses and rumours over how the upheaval will play out before the dirt settles.

On the whole, Budget 2019 was a positive surprise by being an expansionary budget, and one that offers a smaller fiscal deficit moving into next year.

However, the unexpected introduction of additional fees for gaming licences and higher casino duties in Budget 2019 took a heavy toll on Genting stocks. Genting Malaysia in particular became the target of furious selling as the week opened for business.

The stock plunged its daily loss limit of 30% before partially retracing to end the day 20% lower at RM3.61. Holding company Genting was also impacted but to a lesser degree, shaving off 6% by the end of day.

The FBM KLCI’s performance on Monday would have been positive if not for the sharp fall in the two stocks. The index traded within a range of 20 points and ended the day 5.07 points lower at 1,708.8, once again seeking solace in the support at 1,709.

British American Tobacco , on the other hand, was lifted by the government’s promise to target illicit cigarettes and decision not to hand down any additional excise taxes at the moment. The stock rallied, jumping about 19% since the Thursday before the budget announcement.

But while all this was taking place on the domestic market, the geopolitical environment continued to roil markets. Uncertainties weighed heavily on investor sentiment.

West Texas Intermediate crude prices slid into a bear market after losing 20% of its value from a peak of US$76.90 a barrel as the US offered waivers to eight of Iran’s top importers of crude following sanctions on the Middle Eastern nation.

With this move, the supply crunch many had predicted appeared to have been averted. From its perch of US$86.29 a barrel this year, Brent crude had descended about 18% to hover above US$70 a barrel.

The US mid-term elections that took place on Wednesday morning, local time, was also keenly watched. It fell short of a “blue wave” but the Democrats made inroads into Congress nonetheless, securing a majority in the House of Representatives while the Republicans maintained its hold on the Senate.

For investors, this meant that US President Donald Trump’s plans for additional corporate tax cuts were effectively scuttled. US stock futures retreated on the development and Asia followed suit, retracing some of the early gains it had made when it had seemed the Republicans were taking both chambers of Congress.

By Wall Street’s open, however, it had become apparent that investors had taken to the idea of Washington in gridlock. The Dow Jones Industrial Average and S&P 500 each gained 2.1% while the Nasdaq jumped 2.6%.

Observers are betting that to keep the economy growing in 2019, Trump may need to scuttle policies that are damaging to businesses, including easing up on the trade dispute with China. The decision ultimately lies with the ruling party, however, as tariffs on foreign goods are controlled by the executive branch.

On Thursday, Asia tracked Wall Street’s jump and rose in unison. The FBM KLCI continued to establish a positive trend, having picked up slight points in Wednesday’s session. There were no surprises with Bank Negara’s announcement to stay the course on monetary policy and interest rates. The index rose 6.54 points to 1,721.42

Yesterday, the US Federal Reserve also decided to maintain the interest rate although it indicated it was on course to a fourth rate hike in December. Asian markets, hoping for more dovish guidance, were disappointed by the news. The FBM KLCI slumped 13.33 points to 1,708.09.

Statistics: Week-on-week, the major index was down 5.78 points or 0.3% to 1,708.09. Total turnover for the Deepavali-shortened week stood at 8.49 billion shares amounting to RM9.87bil compared with 11.49 billion shares worth RM9.58bil over the last trading week.

Outlook: Hopes that the slip on Wall Street earlier in the month would prompt the US Fed to reconsider a fourth interest rate hike seemed all but dead as the central bank focused on positive economic data rather than growth in business investments. Coupled with a higher fiscal deficit target announced in Budget 2019, the ringgit is expected to face selling pressure over the short term, which could dampen the local equity market.

Yesterday’s retreat to just below the immediate support of 1,709 once again puts the FBM KLCI on a bearish footing with the 1,700 and 1,680 marks below it serving as further support. Given the slow-stochastic’s retreat to neutral ground from overbought conditions, there is expected to be further decline in the near term. However, the index may yet rebound later in the week and return above 1,709. The trading range is pegged at 1,680 to 1,733.

Placed highly on investors’ agenda is the G20 Leaders Summit. Market performance will be swayed by comments made by political leaders in the lead up to the Trump-Xi meeting at the end of the month, which would possibly trigger a break out in either direction.