Dec Market Outlook Cautious trading on US FOMC meeting, but window-dressing may lift KLCI

Business & Markets 2013
Written by Ho Wah Foon of theedgemalaysia.com
Monday, 02 December 2013 16:39
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KUALA LUMUR (Dec 2): While the local market may see cautious trading this
month as it awaits the US FOMC meeting in mid-December, window-dressing
for the end of year may help push up the key KLCI index.
“The trading sentiment in December will be driven to a large extent by the
happenings in the US, including the FOMC meeting, the release of FOMC
meeting minutes, the second US fiscal fight and also the economic indicators of
the US.
“With the exception of year-end window dressing, we don’t see much catalyst
that can lift the local market,” said M&A Securities in an outlook and strategy
report on local equities today.
The final US Federal Reserve FOMC (Federal Open Market Committee)
meeting will be held on Dec 17-18, and the global market will be speculating
when the Fed will be calling in tapering (quantitative easing).
Market watchers will also be paying closer attention to the details of the Fed’s
meeting minutes.
M&A Securities opined that US may launch tapering soon, and that the market
may correct and adjust soon.
“Therefore, we recommend investors to take profit now before the broader
market starts their selling frenzy. With that view, we reiterate our year-end
target of 1,780,” said the research house.
The research house said it expects selling pressure to spark prior and during
the final 2013 FOMC meeting in mid-December and end-December.
“We opine that the tapering will be done at US$5 billion lower each month from US$85 billion to US$80 billion until it will be scrapped off
totally by 2H14. Again, the kick-start of the US tapering would spark a selling pressure of the global equity market, Bursa Malaysia
included.”
Apart from this, the second fiscal fight is not far off. The current US government will have enough funds to operate until January 15, 2014.
“We have seen how much the global equity market has been hurt during the first fiscal fight and going into 2014, we are concerned that
this may happen again.
“Given that January 15th is not far off and in addition to the complex negotiation process via the Senate, we opine that tabling and
negotiation process could start mid-December, if not earlier. Should no consensus can be reached, this will be one of the global equity
market black swans in December.”
In addition to the US factor, selling by foreign institutions could be another depressing factor for the local stock market. Their selling in November reached RM3 billion, much higher than in October when it was RM350 million.
“This may continue in December due to 1) the tapering by the US may result in rapid capital outflow… 2) the fat gains recorded by foreign
institutional since 2009 until now would mean that the time is ripe to take out their holdings,” said M&A.
But the local market could be “saved” by year-end window dressing by funds managers.
“As usual, the window dressing activity may push the index to be robust on the final day of the trading in 2013 and we don’t see any
difference this time around. FBMKLCI, despite the anticipated selling pressure in December, is set to end the year higher y-o-y.
“The window dressing activity may help the index to be above the water comfortably.”