Range-bound trading to continue

  • Stocks Analysis
  • Saturday, 26 Sep 2020

REVIEW: For Malaysian investors, political anxieties emerged to add to the already voluminous headwinds currently experienced by the stock market.

Opposition leader Datuk Seri Anwar Ibrahim’s Wednesday claim that he had secured a majority support in parliament to assume control of the country’s premiership sent things into a tailspin,

For many, it brought to mind the February meeting between members of the government coalition and opposition party members, which paved the way to Tan Sri Muhyiddin Yassin’s eventual promotion to the head of the government.

As with that incident, the domestic equities market fell on concerns over the prospects of political disruption.

On Wednesday, the FBM KLCI lost 9.2 points to 1,496.48, giving up once more the 1,500-point psychological support. Construction stocks were especially hard-hit as there was a risk that the large infrastructure projects expected to be farmed out to bring the economy back on track might not materialise.

Coupled with the negative spillover effects of Wall Street, which was undergoing a steep correction, the local stock market faced headwinds that threatened to blow it off its present perch.

Also at the midweek, the Dow Jones shed 1.9% as traders sold down their shareholdings on fears that the absence of further fiscal stimulus would stall the economic recovery. Especially with the November elections fast approaching, there could be a delay in much-needed government spending to prop up economic activity.

Of course, there was also the expiry of the Malaysia’s loan moratorium to contend with. The government-mandated deferment of bank loans had helped to boost liquidity levels on the stock exchange in recent months.

With the end of the moratorium period, there are fears that the market would no longer see the same level of retail participation.

During Thursday trading, Bursa Malaysia regained some level of composure after the Prime Minister reassured the public over the status quo in the government’s leadership.

The FBM KLCI received some much-needed support from the glove counters, which had resumed their advance on concerns that European countries were experiencing a resurgence of the coronavirus. Hartalega retraced to multi-week highs while Top Glove rebounded from a recent sell-off.

The index rose 4.32 points to end at 1,500.80, suggesting a cautious rebound.

On Friday, glove makers extended their gains as to further shore up the index although trading activity on the market remained subdued as investors approached the unfolding political landscape, which includes the upcoming Sabah state elections, with caution. The FBM KLCI ended the day 8.34 points higher at 1,509.14

Statistics: The major index ended the week 2.51 points or 0.2% higher over the previous Friday at 1,509.14. Total turnover for the trading week stood at 33.09 billion shares amounting to RM20.31bil compared with 32.81 billion shares worth RM23.19bil in the previous four-day trading week.

Outlook: The FBM KLCI had been travelling on either side of the 200-day SMA for the better part of the week although Friday’s advance placed it above the moving average.

Nevertheless, resistance can be seen in the 1,510-1,520 range, and failing to clear this hurdle, the index remains subject to consolidation pressure.

Over the coming period, more range-bound trading is to be expected while investors await new buying catalysts.

The technical indicators are looking healthy with the slow-stochastic and RSI gaining in momentum at just under 40 and 50 points respectively. The MACD however remains mostly flat against the signal line.

A breach of the resistance in coming sessions should see the index attempt a crossing of the 1,560 hurdle, which would also result in a positive crossing of the 50-day SMA. Support rests at 1,480 and 1,450.

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