KLCI week ahead KLCI expected to stage further correction

by **Cals** Mon 17 Mar 2014, 02:38

KLCI week ahead KLCI expected to stage further correction

Business & Markets 2014

Written by Surin Murugiah of theedgemalaysia.com

Saturday, 15 March 2014 12:10

KUALA LUMPUR (March 15): The FBM KLCI is expected to stage further correction next week, as an increasingly opaque global economic and geopolitical outlook keeps the international investing community on tenterhooks.

Royal Bank of Scotland Research in its 2Q 2014 economics market strategy report dated March 13 said the global economy certainly had not taken off like many had hoped three months ago.

RBS Research said growth in fourth quarter US GDP was revised down to 2.4% (-q-o-q, SAAR) and 40% of that came from foreign demand, not domestic demand.

“Much to the chagrin of Asia and Europe, US imports haven’t grown by a single dollar in two years,’ it said.

Meanwhile, Reuters reported that growing tension between the West and Russia ahead of Ukraine's weekend referendum in Crimea pushed down stocks on major world markets on Friday and drove up buying of safe-haven gold and the yen.

Financial markets watched nervously as the West increasingly talked about sanctions and Russia hit back with promises of retaliatory measures and displays of military prowess. The vote being held on Sunday by pro-Moscow authorities is to determine if Crimea will join Russia, it said.

Affin IB vice president and head of retail research Dr Nazri Khan said that following the bearish performance of the global stocks, he expects the FBM KLCI to stage further correction with 1,800 as the immediate target weighed down by Ukraine referendum, Chinese economic jitters, commodities dip and a risk-off vibe across most safe haven assets.

He said that on the global front, global equities came under heavy pressure (MSCI All World and FTSE All World erased 2014 gains and were down 3.2% & 2.9% week-on-week) as further signs of heightened tensions in Ukraine and renewed weakness for commodity prices to offset some encouraging signals on the US economy.

He said as investors braced for the Sunday Ukraine referendum on potential secession from Ukraine, defensive rotation play through gains for havens assets namely gold, silver, yen and USA/German government bonds (climbed 5.1%, 3.2%, 7.6%, 4.1% and 3.2% respectively w-o-w) were evident.

On the technical front, the local stocks should grind lower following KLCI last week failure to overtake 1,830 resistance, he said.

Nazri said the completion of a bearish outside day reversal in the FBM KLCI should also see more downside follow though action and offers the bears early advantage.

He said the short term bias in the top three heavyweights (Maybank, Tenaga & Public Bank) and the weekly loss of 1.1% on rising trading volume may set the stage for a deeper corrective slide targeting 1800.

“While major support levels now stand 1,800 and 1,780, we pegged immediate resistance at 1,820 and 1,850 levels respectively.

“It probably takes confirmation of a decline below the psychological 1,800 level to reverse uptrend and give bears the definitive edge.

He said investors should therefore take the current market weakness as an opportunity to accumulate fundamentally strong stocks for another round of upside wave.

He said positive fundamentals (strong foreign reserves, healthy external balances, ample liquidity and resilient bank capital base) should be pro-ringgit-appreciation to cushion the temporary selloff.

“Strategy wise, given that April-June are always temporarily weaker month, we are advising our customer to buy on dips as we expect the prevailing consolidation to stabilize by late June just before the mid-year book is closed.

“As for stock picks, given the rising dollar and temporarily falling commodities, we are in favour of buy-on-dips the overbought plantation stocks such as IJM Plantation, Hap Seng Plantation, TH Plantation, BatuKawan, TSH Resource, Sarawak Plantation and Kim Loong,” he said.