KLCI week ahead KLCI likely to start off on firmer footing, stage oversold bounce

by **Cals** Mon 10 Feb 2014, 05:28

KLCI week ahead KLCI likely to start off on firmer footing, stage oversold bounce

Business & Markets 2014

Written by Surin Murugiah of theedgemalaysia.com

Saturday, 08 February 2014 12:28

KUALA LUMPUR (Feb 8): The FBM KLCI is likely to start off on firmer footing next week, on improved sentiment following positive domestic and external developments.
On the local front, Malaysia’s exports growth surged to a 26-month high of 14.4% year-on-year in December, prompting economists to forecast stronger economic growth for the country in 2014.
“As such, we forecast 2014 growth to come in stronger at 5%, with an expected acceleration of economic activities in 2H14 – led by steady but improving export demand from the advanced economies, which would likely mitigate the overall moderation in the domestic demand,” said Alliance IB chief economist Manokaran Mottain.
Externally, global equity markets surged on Friday as investors set aside any fear of economic softness in a weak U.S. jobs report, but bond yields and the dollar fell as the data showed employers hired far fewer workers than expected in January, according to Reuters.
Corporate earnings reported thus far at Bursa Malaysia have also shown firmer results, especially Digi.Com that announced a 123% surge in its 4Q2013 net profit.
Affin IB vice president and head of retail research Dr Nazri Khan said that after declining to four month low, (a net loss of 113 points or 6% over the last six weeks, 31st December - 4th February), the FBM KLCI should stage more oversold bounce correcting its deeply-sold-situation and tracking more upswings of Wall Street, Europe and Asian regional indices.
Nazri said he expects local the benchmark to rebound further driven by positive USA economic data, relief in the emerging market currencies and successful break above 1,800 (after a good test of 200 day moving average near 1,780 level).
He said the fact that three worst beaten emerging currencies, i.e Argentina Peso, Turkish lira and South African rand rallied against the USA currency suggest some reliable respite in progress.
“At the same time, we note ringgit has also appreciated 1.1% to 3.321 to lend support to stabilise Bursa next week,” he said.
Nazri said that on the technical front, there was a solid white reversal candle with various momentum studies (MACD, RSI and Stochastics) continue to hook up from oversold territories which support a higher technical rebound.
“Immediate support now stands at 1,800 and 1,780 levels while resistance looms at 1,820 and 1,850 levels respectively.
“Despite the rebound, the market's close below the 20 and 50-day moving average is an indication the medium term trend remains negative. It remains to be seen whether this rebound have legs to create a reliable bottom pattern,” he said.
Nazri said aggressive bulls might consider buying a modest setback in the index futures around 1800, risking a move below 1780 levels, adding that a break below 1780 will have negative consequence while second successful rebound at 1800 may suggest strong uplegs, a double bottom pattern in the making.
“As for strategy, we reiterate our FBM KLCI target is 1,980 by year end, implying 10.1% upside, 16x FY14 PER (Price Earnings ratio) or 14.9x FY15 PER, backed by earnings growth rates of 14.6% and 9.8% for FY14 and FY15, respectively.
“Meaning any weakness are excellent buy-on-dips opportunities. Coupled with an estimated FY14 dividend yield of 3.4%, the local equity market offers 13.4% total return from here,” he said.
Nazri said that in terms of sector view, he was bullish on (i) Banks, (ii) Construction and Infrastructure, (iii) Oil and Gas, (iv) Rubber Gloves (v) Technology (vi) Transports and Logistics and (vii) Utilities, but bearish on on (i) Auto and Autoparts, (ii) Building Material and (iii) Healthcare.