It all depends on election outcome

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MARKET TREND
By K.M. LEE


REVIEW: Technical
indicators aside for now and regardless how overseas stock exchanges
have performed, Bursa Malaysia is highly likely to experience increase
trading activity, with more investors moving back to the marketplace
next week.
But whether they return to buy or liquidate will very
much depend on the results of 13th general election tomorrow and below
are the possible scenarios:
In the case of a modest win in
Barisan Nasional's favour, we are likely to see gradual uptrend on the
local bourse amid follow-through support and should BN reclaim the
two-thirds majority, all would be fine and well, which may witness
foreign investors increasing their bets and institutional investors,
together with retail players joining the bandwagon, thus sparking a
bullish mood on the broad front.
On the contrary and in a
worst-case scenario, if the unthinkable happens, meaning there is a
change of government, investors should be prepared for a brutal
beating, with no one being spared this round.
Consequently,
billions of ringgit would be wiped out from the market and the circuit
breaker is bound to be triggered. But as for how many times the alarm
bell will ring is unknown.
There is no exaggeration here but
analysis strictly based on the market history, the unusual market
volatility in the recent months that was not seen before, and precedent
set in the year 2008.
On resumption of business post-12th
general election on Monday, March 10, 2008, Bursa tumbled as much as
138.86 points, or 10.7%, to 1,157.47 on a panic-selling spree after BN
lost its customary two-third majority and the circuit breaker was
triggered for the first time since its implementation in March 2002.
Subsequently, the market was suspended from trading for one hour.
At the close on that day, the local bourse pared losses slightly to close down a hefty 123.11 points, or 9.5%, to 1,173.22.
Prior
to that, the largest single-day drop on closing basis was only 95.5
points, logged on Sept 8, 1998 at the height of the Asian financial
crisis.
Basically, Bursa can plunge a maximum of 20% off its
current value in a single day and trading suspended for the rest of the
day under four situations in an extreme instability condition, although
the circuit breaker was nicely in place. For more information about the
mechanism, investors are advised to visit [You must be registered and logged in to see this link.] for more information.
Well,
some people may see this as a great buying opportunity but smart
investors would tell you that it is not a very good idea of catching a
falling knife, unless your pocket is bottomless. The reason is because
prices could become cheaper come tomorrow and swoon further into the
abyss under such acute jittery condition.
Meanwhile, others may
argue that the market will recover eventually. That is no doubt about
it, but the time and how long the market takes to heal is the key
matter investors should take into consideration.
Tracking back
the distant past, the longest and terrified bearish phase recorded
lasted a full 18 months, which saw the principal index touching a low
of 261.33 in early September 1998 after peaking out at the
1,278.94-point level on Feb 26, 1997, a total loss of 1,017.61 points,
or 80% of its value a level out of investors' imagination due to
capital flight and margin calls.
After the dust settled, the
market manoeuvred back on the mending path but it never reached
pre-crash level until a decade later.
As we can see, the
energetic bulls had worked very hard to reach where they are now.
Needless to say, it was a long journey. Meanwhile, we all know that
confidence takes a long time to build.
To avoid the looming dire
consequences of a free-fall market from happening, perhaps investors
out there should preserve their cool and think carefully before casting
the cross on that piece of paper this Sunday.
Anyway, the ultimate decision or the final choice is yours.
In
a regular market, the key index is likely to encounter significant
resistance at every 20 or 30 point interval above the 1,700-point
psychological mark.
Current support is pegged at the 50-day
simple moving average (SMA) of 1,669 points, followed by the 100-day
SMA of 1,660 points. A slip below the povital 200-day SMA of 1,650
points will have negative impact on the market, going forward.
For
the week just concluded, the principal index shed 16.52 points, or 1%,
to 1,694.77 yesterday, compared with 1,711.29 on April 26.
Total
turnover for the four-day week stood at 3.237 billion shares valued at
RM7.971bil, versus 3.8 billion units worth RM8.225bil done a week ago.