FBM KLCI ready to plot fresh highs

Written by HwangDBS Vickers Research
Monday, 14 September 2009 09:24

KUALA LUMPUR: HwangDBS Vickers Research sees the Malaysian bourse to be back on track now, ready to ride on a positive trajectory to plot fresh highs for the year going forward.

In a research note issued on Sept 14, it said the positive upside comes after the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) jumped last week, climbing to a high of 1,210.36 before finishing at 1,208.28, up 29.5 points or 2.5% from the previous Friday’s close.

Rising in tandem through the week was the FBM 70 Index (+2.0%) but the FBM ACE Index ended weaker (-1.3%). Daily average volume rebounded too to 662.2m shares valued at RM1.1 billion, from 548.4 million units worth RM981.9 million previously.

"While trading activity should ease ahead of the long weekend break, the bulls will still want to sustain the renewed momentum generated from last week’s upbeat performance," it said, adding the the focus will turn to the external front for new leads to emerge.

It said this was because news flows on the domestic scene was likely to be quiet. No key data is anticipated other than the insignificant ones namely Consumer Price Index report for August (due on Wednesday, Sept 16) and the international reserves as at Sept 15 (due to be released on Friday, Sept 18.

"In particular, investors will be watching the US Federal Open Market Committee meeting scheduled on next Tuesday and Wednesday (22-23 Sep). Notwithstanding the consensus view of a status quo in federal funds rate, of probable interest will be the policy makers’ rhetoric on interest rate expectations and the US economic prospects.

"The tone of their language could shape investors’ opinion on matters like the US$ movement, which in turn may skew the dynamics of commodity prices and global fund flows," it said.

HwangDBS Vickers Research said for example, should the near zero interest rate environment stretch on longer than anticipated, a continuous (and gradual) slide in the greenback – coming under pressures lately – may lift the price of commodity such as oil and divert investment money out from the U.S. in the process.

And in an extreme scenario, an unabated (and fast) tumble of the US dollar could send panicky investors scrambling to protect the value of their mostly US$ denominated investments.

As global bourses swing ahead, Malaysian equities likewise will be swayed by the changing overseas mood albeit in a less volatile manner owing to a smaller presence of foreign money in the local stock exchange. Its bellwether FBM KLCI has displayed resilience once more – regressing merely 3.6% over three days recently – to extend a pattern that consists of shallow and short market corrections.

Since mid-March this year the FBM KLCI has pulled back five times, falling no more than 7% and lasted fewer than eight days.

Going by the latest market trend, the FBM KLCI – back to where it was in June 2008 – is poised to scale higher grounds in the near term.

After staging a technical breakout from the mini-triangle formation to penetrate above 1,190 (the resistance-turned-support level) last week, it is expected to test (and subsequently overcome) the immediate resistance target of 1,230 going forward.

Beyond that, 1,255 stands as the next resistance line to be challenged, as the bullish momentum (guided by the rising channel) carries on.