KL bourse's consolidation ahead of elections

Investors should look to sell on strength Gamuda, RHB
Capital, IJM Land and Muhibbah Engineering as profit-taking resistance
restrict further gains, says a head of research.

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THE FTSE Bursa Malaysia KLCI (FBM KLCI) extended its climb a fifth
straight week to chart another intraday record high as early investor
disappointment over the failure of Petronas to privatise MISC and weaker
April PMI data from China were offset by regional strength on yen
weakness and after new home sales in US beat estimates. Hopes that the
local market will eventually catch up with regional peers helped stocks
end on a firm note ahead of the weekend.

For the week, the FBM
KLCI climbed another 5.01 points, or 0.29 per cent, to 1,711.29, with
AMMB (+23 sen), Public Bank (+12 sen), UMW Holdings (+56 sen) and Axiata
(+7 sen) representing most of the index's gains. Average daily traded
vo-lume and value mildly dwindled to 759.9 million shares and RM1.64
billion, respectively, compared with 837.5 million shares and RM1.65
billion average the previous week, as most investors and market players
stayed aside ahead of the keenly awaited general election.

The
outcome of 13th General Election should check further gains this week
as investors get ready to fulfil their obligations as responsible
citizens. The dwindling volume is a good indication of the cautious mood
in the air despite the index testing a new high of 1,718 last Friday,
where the advancement was confined to selected blue chips and not broad
based. Investors should sell overva-lued government-linked blue chips,
especially those in the downstream oil and gas sector and plantation
sector, and buy undervalued big caps and second li-ners in the banking,
upstream oil and gas, glove and property sectors.

Keep a close
eye to accumulate on weak construction players that will benefit from
continuity in government policies, if one believes the incumbent will
retain its hold on the government.





Post-GE, the incumbent's ability to defend its turf should be positive
to push up the index to test the 1,780 level based on CY14 PER of 14.5x
but the sustainability of the benchmark index remaining at this level
is dependent on the performance of other regional markets, considering
that the FBM KLCI is already trading at a hefty premium. There is no
doubt that we have only advanced by 1.3 per cent year-to-date compared
to Thailand and Indonesia's 14 per cent and 15.3 per cent, respectively,
but underperformance alone is not a valid justification to overweight
the market if not supported by attractive valuation. Besides, subsidy
cuts and strong likelihood of implementation of goods and sales tax
post-13th GE will have negative impact on demand and corporate earnings
that could weigh down on the market sentiment.

Election aside,
news that major international airlines are returning to Malaysia may
create some interest in Malaysia Airport Holdings Bhd (MAHB), which will
benefit from higher tourist arrivals. A news report last weekend
proudly attested that Turkish Airlines and Air France landed in KLIA
last week and apparently Philippine Airlines will follow suit real soon
after a very long absence as these airlines do not wish to be left out
from seizing the opportunities created by booming passenger growth in
Asia.

However, the excitement could be dampened by the fact
that MAHB's first quarter 2013 core earnings contracted by 4.3 per cent
year-on-year to RM106.4 million (excluding construction profits) on
higher operating expenditure as staff cost increased due to higher
headcounts in preparation for the launch of klia2. While the launch of
klia2 should augur well for long-term earnings growth, management's
decision to remain tight lipped about the level of work completion and
allegation that the launch this end-June will be delayed are short-term
dampeners for the share price. If it is true that the launch will be
delayed (potentially to year-end) due to outstanding works and trial
runs, worries about potential cost escalation will take centre stage.
While brokers may adjust their CY13 and CY14 earnings as the recognition
of capitalised costs are being pushed forward, near-term uncertainty
will provide good trading opportunities.

Technical Outlook

Spot
month April KLCI futures contract added nine points, or 0.5 per cent,
to 1,714, reversing to a 2.7-point premium to the cash index, compared
to the 1.28-point discount the previous week, as shortcovering interest
picked up ahead of contract expiry given the resilience of the futures
contract.

Blue chips on Bursa Malaysia extended profit-taking
consolidation amid cautious trade last Monday, with market tone dampener
from failure of Petronas to privatise MISC. The KLCI ended flat at
1,706.68 as losers beat gainers 463 to 212 on moderate trade totalling
784.6 million shares worth RM1.35 billion.

Overbought blue chips
and regional weakness following a weaker April PMI data from China
forced the local market into extended correction the next day. The KLCI
slid 6.29 points to close near session lows at 1,700.39, as losers beat
gainers 470 to 202 on lacklustre trade of 742.4 million shares worth
RM1.4 billion.

Blue chips rebounded last Wednesday led by
plantation stocks IOI Corp, KLK and Genting Bhd, encouraged by regional
strength on yen weakness and after US new-home sales beat estimates,
fuelling recovery hopes.

The KLCI climbed 6.96 points to close
at the day's high of 1,707.35, as gainers edged losers 344 to 294 on
moderate trade totalling 734.4 million shares worth RM1.37 billion.
Rangebound trade persisted on the local market the following day, with
most investors sidelined ahead of the general elections while regional
markets stayed buoyant on earnings optimism. The KLCI ended 1.01- point
lower at 1,706.34 as losers beat gainers 329 to 299 on mild trade
totalling 747.2 million shares worth RM1.82 billion.

Buying
interest picked ahead of the weekend as investors deemed that the
laggard local market will eventually catch up with the stronger
performance in regional markets. The benchmark index closed up 4.95
points at 1,711.29, off an early low of 1,703.34 and record intraday
high of 1,718.08, as gainers led losers 360 to 297 on 790.9 million
shares worth RM2.27 billion.

Trading range for the local
benchmark index last week narrowed further to 18.34 points, compared
with the 23.44 points range the previous week as blue chips extended the
current sideways consolidation trend. For the week, the FBM-EMAS Index
added 11.18 points, or 0.1 per cent, to 11,678.82, but the FBM-Small Cap
Index slumped another 156.78 points, or 1.26 per cent, to 12,272.80 as
small cap slipped further on sustained profit-taking and selling
activity.

The daily slow stochastic indicator of the FBM KLCI
hooked up due to last Friday's rebound to chart a new intraday high,
while the weekly indicator inched closer to the overbought zone. The
14-day Relative Strength Index (RSI) momentum indicator has also hooked
up mildly with a reading at 68.21 as of last Friday, while the 14-week
RSI sustained a gradual ascend to a reading of 65.48.

On the
other hand, the daily Moving Average Convergence Divergen-ce trend
indicator continues to flatten out, signalling consolidation, but the
weekly MACD signal line maintained its bullish uptrend mode. The +DI and
-DI lines on the 14-day Directional Movement Index (DMI) trend
indicator also sustained a posi-tive signal but the ADX line conti-nues
to indicate non-trending mode.

Conclusion

The local
stock market should extend consolidation this week as the 13th general
election approaches, with investors likely to remain sidelined amid
uncertainties about the election. Subdued trading should persist with
buying momentum staying lacklustre, probably with the average daily
trading volume remaining below the 800 million- share mark, which should
force stock prices to stay in tight range- bound trade.


Immediate support for the index remains at the previous 1,699 record
high of January this year with better support coming from the 30-day
moving average now at 1,680. Stronger retracement supports are at 1,658,
representing the 23.6 per cent Fibonacci Retracement (FR) of the 1,526
low of May last year to the 1,699 record high of January this year, and
1,633, the 38.2%FR as a strong downside buffer. Immediate resistance is
revised to last Friday's intraday record high of 1,718, matching the
upper Bollinger band, while a breakout will target 1,740, 123.6 per cent
Fibonacci Projection (FP) target.

Nevertheless, chart-wise,
investors should look to sell on strength Gamuda, RHB Capital, IJM Land
and Muhibbah Engineering as profit-taking resistance restrict further
gains, while look to buy on dips Axiata and Public Bank for medium-term
upside.

The subject expressed above is based purely on technical analysis and opi-nions of the writer. It is not a solicitation to buy or sell.