KL bourse -- mild technical rebound looms

As long as buying momentum remains weak this week, any technical rebound gains will be weak and prone to profit-taking, says a research head

Shares on Bursa Malaysia stayed within a narrow trading range with downward bias last week given the weak investor participation as they fretted over possible further weakness ahead due to spillover from bearish overseas markets.

Consequently, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) eased 4.93 points, or 0.46 per cent week-on-week to end on Friday at 1,067.76.Losses in BCHB (-30 sen), IOI Corp (-20 sen) and Genting Bhd (-25 sen) were offset by gains in Public Bank (+20 sen), Axiata (+8 sen) and Tenaga (+15 sen) which cushioned the downside of the FBM KLCI.

Average daily trading volume and value dwindled to 680.2 million shares worth RM1 billion from 999.2 million shares valued at RM1.08 billion in the previous week.The prime minister on Saturday announced 11 people-friendly measures in conjunction with his 100th day as the country's premier.

They include a 20 per cent discount for highway users who pay toll 80 times a month or more via the Smart Tag or Tounch 'n Go effective September 1, which would largely benefit businesses or individuals who pay multiple tolls on a daily basis.

This could cause a knee-jerk reaction in share prices of listed infrastructure players like PLUS and Litrak but it is difficult to estimate the impact without knowing the usage frequency of motorists who use toll roads frequently.

Nonetheless, this temporary measure until the toll rates are comprehensively reviewed could promote the usage of both the above facilities and help reduce cost in engaging people to man the toll booths.

The setting up of Amanah Saham 1Malaysia with a maximum size of 10 billion units is positive for the capital market in the short to medium term as fresh capital could find its way into equities and bonds.

Some daily technical indicators are pointing towards a potential rebound this week. Nonetheless, the underlying market sentiment is still weak and could check any gains in the benchmark index as investors stay on the sidelines and wait for more clues to the prospects of an economic recovery from abroad.

These include the second quarter earnings reporting season in the US that will end in July and the unfolding of key leading indicators like industrial production, business inventories, housing starts, building permits and retail sales this week.

The fantastic run in equity markets since March this year has factored in possibilities of a V-shape recovery and a "reality check" is under way now. Markets adjust lower with the unfolding of worse-than-expected economic data and corporate profits and this process is expected to last throughout the third quarter as it would probably take two or three quarters more to see the positive effect from global pump-priming efforts trickling down the broader economy.

This adjustment is a normal process during a recovery period from an economic slump to growth and there will be no exception for Bursa Malaysia. Traders should sell on rally and wait to bottom scoop around 960 to 1,000 points.

However, it is important to recognise that a recovery will eventually be visible by late this year or early next year but to take positions after the fact would be a tad too late. The FBM KLCI is likely to run ahead of that and that would not be possible without a rally in banking and plantations stocks.

Thus, be alert for re-entry opportunities in these sectors and high beta plays as they correct this quarter. Continue to overweight oil & gas, property, technology and gaming sectors. Look to buy on dip opportunities in cyclical sectors like construction that will benefit from the impending huge development expenditure as there is only 18 months left for the government to realise the objectives of the Ninth Malaysia Plan. There could be a slew of big ticket items due for announcement over the next six months.