FBM KLCI slips below 50-day SMA


  • Markets
  • Monday, 27 Jan 2020

Bursa gallery two

REVIEW: Even as Iran-US tensions subsided following the military action between the two nations earlier this month, fears over a possible outbreak of a potentially deadly virus could derail investment sentiment.

Confirmation on Tuesday that China’s coronavirus was spreading to other countries re-set investor expectations in the final week of the Year of the Pig.

The revelation that the disease could be spread from human to human further intensified fears of contagion.

The first case of the Wuhan coronavirus in the US was announced midweek, adding the country to a list of others in Asia that had recorded instances of the virus.

Entering the week, Bursa Malaysia was coming off a three-day rally as it rebounded from the easing geopolitical tensions, coupled with positive economic data coming out of the world’s two largest economies.

The FBM KLCI had returned above the 50-day simple moving average (SMA) after having slipped below in days prior.

This put the index on a more solid technical footing, and helped to reaffirm that the positive sentiment seen in the second half of December 2019 remained intact.

Despite leading into the Chinese New Year celebrations, trading activity on the market proved robust as investors reacted to the market catalysts that were seen entering the fray.

Glove makers on Bursa Malaysia were seen picking up points as investors bet on a spike in medical glove demand should the coronavirus outbreak accelerate.

Observers were reminded of the SARS outbreak that gripped the world in 2003, and the impact that virus had on global healthcare.

Hartalega and Top Glove, being the two glove makers listed on the FBM KLCI, helped to pick up the market, rising about 10% and 16% respectively during the week.

But outside the sector, investors’ taste for equities had soured over the prospect of a global crisis.

By Tuesday, the global investment community had begun to take stock of the growing evidence of contagion from the Wuhan virus, sending funds out or riskier assets and into safe havens.

The losses in the FBM KLCI were slightly mitigated by heavy gains in its glove makers but ended the Tuesday session 1.55 points lower at 1,587.33.

Pre-emptive measure

Wednesday’s trading focus rested on Bank Negara’s decision, announced at 3pm, that it had cut the overnight policy rate by 25 basis points to 2.75% as a “pre-emptive measure” to support economic growth.

The decision came as a surprise and bank stocks were put under pressure by the prospect of compressed margins.

The major banking counters experienced selldowns of 0.58% to 3.56%, which dragged on the FBM KLCI.

By market close, the index was 9.35 points in the red at 1,577.98, falling once more below the 50-day SMA.

With this dip below the support, the outlook on the market started looking shaky although it remained to be seen if it would recover after the passing of the knee-jerk reaction over the coronavirus and the profit-taking period of CNY.

As the CNY weekend loomed, investors took some money off the table, which was also a precautionary measure over the possible spread of the coronavirus during the holidays.

China’s benchmark Shanghai Composite Index plunged 2.75% on the eve of its week-long holiday amid the contagion fears.

The FBM KLCI extended its fall from the previous day by 4.11 points to 1,573.87.

During last Friday’s half-day trading session, some continued with profit-taking taking the FBM KLCI 1.63 points lower to 1,572.81.

Statistics: The major index ended the week 17.27 points lower over the previous Friday, at 1,572.81.

Total turnover for the 4 1/2-day trading week stood at 12.16 billion shares amounting to RM9.31bil compared with 13.24 billion shares worth RM9.27bil over the previous trading week.

Outlook: Five days of decline on the FBM KLCI reflected the weakness in the market ahead of the holiday period.

However, there could be some retracement in subsequent days as it remains to be seen if the coronavirus outbreak will become a serious global concern.

However, looking at the price chart, the index seems to have found support at the 1,570 mark. Given the oversold position suggested by the technical indicators, there could be some attempt to return above the 50-day SMA.

This would be more likely in the event of positive updates over the control of the spread of the coronavirus.

Looking at the technical indicators, the slow-stochastic has slipped into oversold territory.

The daily moving average convergence/divergence line has also fallen below the zero line to suggest a descending trend.

Support for the share can be found at 1,570 and 1,550. To the upside, the FBM KLCI could attempt to rise past the 50-day SMA to 1,590 and aim higher for the 1,600 mark.

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Bursa , Malaysia , FBM KLCI , slips , below , 50-day SMA , Fong Min Yuan , virus , China , Iran , US , tensions ,

   

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