Global shares sell-off likely to continue

PETALING JAYA: That sinking feeling is back, as shares on Bursa Malaysia took a heavy beating yesterday in tandem with regional markets, following the dramatic plunge on Wall Street overnight.

Amid growing concerns that the global economic recovery is faltering and the European debt debacle may degenerate into a major crisis, market analysts are of the view that the global sell-off in stocks will likely last for a prolonged period, and that the Malaysian stock market will not be spared from this global rout.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) yesterday ended 19.32 points, or 1.29%, lower at 1,483.98. On a regional basis, it was considered the better performing ones.

“It's a bloodbath, really,” Maybank Investment Bank Bhd's head of retail research, Lee Cheng Hooi, told StarBizWeek.

In a tone that made him sound like Malaysia's own version of Dr Doom, Lee said the stock market slump would likely last for a while.

“Upward catalyst? Is there any? Where?” he quipped. “The Western economies are in a dire state. The European debt crisis is not something that can be solved easily. It's going to be a great, great problem looming over global financial markets for a while.”

MIDF Research shared the same sentiment. It explained in its recent report that the severe retracement in the local market was clearly a contagion effect from the turmoil on Wall Street.

“When global sentiment towards equity is weak, no market can claim to have decoupled from Wall Street, the centre of the world's equity market.

“We believe investors are bracing for a prospect of either a global double-dip recession or a marked slower-than-expected growth,” it said.

MIDF Research had ascribed a 40% probability for the US to head for a double-dip, the eurozone economies to enter a recession and China to head for a hard landing.

Most analysts believed the US economy was drifting closer to a recession, as high unemployment posed risk to consumer spending. Following news that the average number of workers filing for jobless claims during the week ended Aug 13 had risen by 9,000 to 408,000, US stocks tumbled, sending the Dow Jones Industrial Average on Thursday down by 419.63 points, or 3.7%, to 10,990.58.

The prevailing uncertainties sent gold prices soaring to new record high. Spot gold was quoted around US$1,863.10 per ounce yesterday evening.

The bears were back, and the negative vibes would surely be felt across regional markets, HwangDBS Vickers Research said.

MIDF Research said it expected the local bourse to encounter a “death cross” in mid-September, upon which the FBM KLCI movement could fall below its long-term moving average, triggering a secular (long-lasting) downward trend.

How long will this last? Well, in 2008, it lasted for more than six months.

While there could be some technical rebounds along the way, selling pressure on the Malaysian equity market would unlikely cease over the medium term.

Technical analysts believed the FBM KLCI could be testing the recent low of 1,423.47 very soon.

“We are still within the confines of a rising wedge pattern (a technical term to describe further downward direction), which will soon see a breakdown,” said MIB's Lee.

When asked for his advice to investors, he said: “So, why buy now when you can buy at much lower levels eventually?”