KLCI week ahead Bumpy ride to continue for local bourse, with some silver lining

by **Cals** Sun 24 Nov 2013, 19:33

KLCI week ahead Bumpy ride to continue for local bourse, with some silver lining

Business & Markets 2013

Written by Surin Murugiah of theedgemalaysia.com

Saturday, 23 November 2013 10:26

KUALA LUMPUR (Nov 23): Analysts are mixed on the prospects for the local bourse next week, with some expecting the FBM KLCI to stage a solid rebound and others predicting jitters ahead of crucial growth data from the US.
Affin IB vice president and head of retail research Dr Nazri Khan said despite several false starts, he expects local stocks to stage a solid rebound on Moody upgrades of Malaysian rating and positive regional strength following China absence of market painful reforms, Japanese liquidity pump priming and tame data from USA labour market/inflation figures which offset worries that the Federal Reserve could reduce stimulus sooner than expected.
“Over the past week, we see the local stock market dips lower on profit-taking dragged by the cautious release of the latest US Federal Reserve meeting minutes and the OECD slower global growth forecast.
“Contrary to the earlier session sell-off, investors subsequently appeared to take a strong relief after the release of slower inflation and sharper than expected fall of USA initial jobless claims figures,” he said.
Nazri said positive tones could be seen in Asian region following absence of China economic reforms despite talks of tough tightening to curb the flow of credit and burst the nation’s property bubble during the weekend’s meeting of China’s Communist party hierarchy.
“On the domestic front, Bursa and financial stocks in particular should find support from Moody Rating Agency upgrade of Malaysia’s sovereign credit outlook, driven by improved prospects for fiscal consolidation, public finance reform as well as continued macroeconomic stability in the face of external headwinds brought on by price stability and a credible central bank,” he said
Nazri added that although financial stocks showed market leadership early this year, they remained one of the market's most undervalued sectors and had been underperforming since August 2013 and are still playing catch-up to the rest of the market.
“We believe the Moody upgrade could be the logical time for Finance relative ratio to turn up leading FBMKLCI higher.
“Given the upside leadership in small cap stocks (FBMSmallCap, FBMFledgling and FBMAce remain within 1% of their record high), we are optimistic that Chinese New Year play is still ongoing and should prop risk-taking sentiment in December-January despite several snags spotted in the blue chips counters,” he said.
Nazri said three major news that may catalyse Bursa included the following : Malaysian consortium (SP Setia, Sime Darby & EPF) securing a £790.2 million (RM4,093 million) facility for the development and land refinancing of the Battersea project in London, Selangor government maintaining its earlier offer to take over Puncak Niaga Holdings Bhd's water assets and Prestariang Bhd aggressive maiden ventures into oil & gas sector to turn into a RM1bn company within the next three years.
On the technical front, oscillators are mixed with daily stochastics turning lower from overbought levels while MACD close to flash golden crossover reinforcing an upside break ahead especially if the FBM KLCI finds near term support at 1,790 which is the 50 day moving average, he said.
“The market however could take on a defensive posture if the FBM KLCI reverse down and violate 1,790 support level.
“The local market may take a slightly negative bend but the general uptrend pattern remains intact with local smaller cap stocks seemed to hold up better than their less riskier blue chip peers,” he said.
Nazri added that while there was potential for a short term bounce in the market to rebalance oversold technical conditions, the prevailing trend points up with immediate target at 1,800 level.
He said one way to look for signs of market stress was to look at breadth figures which so far remain positive suggesting more stocks participating in the rally.
Hence, we believe any weakness is just a temporary and should not be construed as the start of a new crisis downleg.
“Given the improved market breadth (average daily trade increase to 1.9 billon shares worth RM1.7 billion), we expect the local market to sustain gains going forward with immediate resistance spotted at psycho resistance of 1800, July high of 1,811 and all-time-high of 1,826 while immediate support is pegged at 1790, 1780 and 1760 levels to immediately cushion any profit taking.
“Finally, for the weekly strategy, we are inclined towards buying Chinese New Year linked small cap stocks such as Wellcall, Uzma, Deleum, Cypark, DKSH, Iris, Hovid, Yinson and Coastal.
“As for blue chips, traders should accumulate holiday-season-beneficiaries-stocks which do well near the festive year end such as Malaysia Airports, Petronas Dagangan, Maxis, Genting, Dutch Lady, AEON, QL, Zhulian and Tenaga,” he said.
Meanwhile, M & A Securities research head Rosnani Rasul said Wall Street was likely to get jittery and nervous no thanks to the latest US Federal Reserve meeting minutes that revealed the quantitative easing tapering could start in the next few months.
“We have been predicting this and we foresee the siren will be called in March next year,” she said.
Rosnani said although the tapering would start in the late 1Q14 but nonetheless, the capital outflow from the emerging countries debt and equity market could start in January or February.
“We believe that the equity market players would like to see an early slide of the index (i.e. at the start of the year) before making sure that the recovery will begin as soon as the market normalizes.
“All in, once the tapering starts, we expect a prolong period of selling pressure before the market will redeem itself and starts to resume its buying momentum. There will be a period of edginess in first half of next year but the market is likely to normalize in the second half the year,” said Rosnani.
She said the quantum of the capital outflow out of the emerging countries was hard to quantify but the amount could be big given the long liquidity rally period that started in 2009 and still continues until now.
Rosnani said month-to-date total selling had reached RM2.1 billion from RM1.5 billion since last week, adding that she predicts the foreigners will continue cashing out at least until 1Q14.
She added all eyes would be focusing on the US economic release next week as many would like to get the first hand feel when the US Federal Reserve will call the shots on tapering.
The US will release a host of housing related statistics next week including 1) pending home sales (25th) 2) housing starts (26th) 3) building permits (26th) 4) housing index (26th) and 5) durable goods order (27th).
“So far the recovery in US housing related indicators have been mixed and less-than-solid but all that could change next week. Hence, all the energy and focus will be directed toward these data in our view,” she said.