Time for investors to be nimble

Written by Ellina Badri & Surin Murugiah
Monday, 28 September 2009 12:09

KUALA LUMPUR: Investors should remain selective in holding on to their positions in the equity market amid the current bout of correction and keep an eye out for profit-taking opportunities, analysts said.

They said it was the season for investors to be nimble, paying attention to macro economic issues and be prepared to sell into rallies even though the local bourse was not expected to see any major corrections.

OSK Research head Chris Eng said the research house was “not too alarmed” with the mild profit taking currently occurring on the local market, which was “still buoyant”.

The FBM KLCI ended the holiday-shortened three-day trading week 0.31% lower at 1,217.39 points from the previous Friday’s close. The decline was in part due to the prevailing cautious sentiment in the regional markets, which fell in tandem with Wall Street.

Analysts have said the local market was expected to trade range-bound as well as undergo some mild corrections before recovering in early October.

US stocks fell for a third straight day last Friday on disappointing housing and durable goods data, with the Dow Jones Industrial Average dropping 42.25 points, or 0.44%, to 9,665.19.

There are still no clear indications that the US economy is out of the woods as the US Federal Reserve kept interest rates at near zero level after the Federal Open Market Committee meeting last Tuesday.

Also, the unexpected decline in existing US home sales for the first time since March caused a minor blip, leading investors to view that a recovery in US housing was slowing down.

Inter-Pacific Research Sdn Bhd said the decline in US home sales in August was unlikely to undermine actual sales that had grown in five out of eight months this year.

“As such, we are of the opinion that the latest data is unlikely to undermine the US Federal Reserve’s comments on the improving housing market and growing stability in the economy.

“We continue to hold our view that the improvement in the housing market will remain modest as the real test will be when the government ends the stimulus measures,” it said.

Added on to that was the announcement by Nomura Holdings Inc, Japan’s biggest brokerage, of a planned US$5.6 billion (RM19.38 billion) share sale, which led to the Nikkei 225 falling more than 2.6% last Friday, dragging along with it other regional indices.

The FBM KLCI last week held out fairly well, declining less than its regional peers. Morgan Stanley has said the Malaysian market has developed a defensive nature, outperforming during market downturns and underperforming during market upturns.

Hong Kong’s Hang Seng Index posted the region’s biggest week-on-week loss, declining 2.77% to 21,024.4 points last Friday, while Japan’s Nikkei 225 index lost 1% to 10,265.98 points. Singapore's Straits Times Index, however, bucked the trend and rose 0.56% to 2,662.82 points.

OSK’s Eng told The Edge Financial Daily it was too early to judge whether the correction in the local market would turn into something major, with more concrete signs likely to appear today following the end of last weekend’s G20 summit on financial reforms.

He also said in general globally, over the last six months, market talk on reducing fiscal stimulus or tightening monetary policy would prompt a selldown in stocks, before investors returned to the market.

“The G20 will probably come out to say that the liberal fiscal and monetary policies will need to be maintained until the recovery is more certain, and investors will use that as an excuse to buy up the market again,” Eng said.

On the local front, he said the government would likely unveil “sweeteners” ahead of the Budget 2010 announcement on Oct 23, which would boost the FBM KLCI.

On OSK Research’s investment strategy, he said it maintained its two-pronged approach of buying liquid big-cap stocks, such as CIMB Group Holdings Bhd, Axiata Group Bhd and PUBLIC BANK BHD [], and trading small-cap counters such as those from the oil and gas and CONSTRUCTION [] sectors.

OSK Research vice-president Shin Kao Jack said among stocks whose charts showed a bullish trend were GUOCOLAND (MALAYSIA) BHD [] and TOMYPAK HOLDINGS BHD [], which closed last Friday unchanged at RM1.23 and RM1.55, respectively.

He said Guocoland’s stock was currently testing its 52-week high of RM1.48, and should stage a “major breakout” should it reach that level, while Tomypak’s counter could also see stronger upside should it break through its high of RM1.66.

In a note last Friday, Shin also said the immediate and mid-term technical outlook of MALAYAN BANKING BHD []’s stock was now aligned with a bullish bias.

“The stock is still trending higher, and comfortably, at above the 50-day moving average line, a line with which we gauge whether the uptrend which started in March this year is a healthy line.

“The 50-day MAV line is now situated at the RM6.50 level. Maybank has been exhibiting signs of bottoming out from the 50-day MAV line since late August, and there is a possibility that the stock may challenge the previous peak of RM6.86 soon,” he said. Maybank’s counter closed one sen lower at RM6.68 last Friday.

Also in a report released on Friday, Maybank Investment Bank Bhd chief chartist Lee Cheng Hooi said with the FBM KLCI making fresh highs despite having surpassed its recent 1,196.46-point peak, risks to the downside would increase significantly while potential rewards diminished.

He also said it would only be a matter of time before a steep correction set in.

“Bearish divergent technical signals are now very obvious. Waning potential upside would cause wise investors to dispose of stocks on the FBM KLCI on rallies. This rise will be fraught with heavy stock liquidation. The next major impending move will be down,” he said.

He also said the local bourse was expected to stall in its saturation zone of between 1,237.25 and 1,248.34 “very soon”, and that investors should remain in a “selling mode and stay vigilant”.

Lee added investors should “dispose of stocks on any and every rebound from now”.

He also highlighted 11 stocks to take profit on, including IJM Land Bhd, PROTON HOLDINGS BHD [] and CIMB Group Holdings Bhd, and three stocks to accumulate, namely manufacturers SUCCESS TRANSFORMER CORP BHD [], LCTH Corp Bhd and WELLCALL HOLDINGS BHD [].

IJM Land finished last Friday unchanged at RM2.15, while CIMB and Proton closed eight sen and three sen lower to RM11.16 and RM4.22, respectively.

Success Transformer closed unchanged at RM1.07, LCTH fell two sen to 35 sen and Wellcall rose one sen to RM1.16.

Additionally, Lee said TENAGA NASIONAL BHD [] could “very soon move into a downtrend”, recommending investors to take profit on any rally for the stock with its weaker support areas at RM7.95 and RM8.19, and increasing downside potential. Tenaga closed one sen lower at RM8.20 on Friday.

Meanwhile, ECM Libra Research, in a recent note, also sees profit taking ahead for the FBM KLCI, although it expected a more positive outlook for the local market after the pullback ended.

“While it is uncertain whether this small profit taking wave which we are calling for would morph into a significant correction or a reversal, it is always prudent to take a little money off the table first, especially after such significant gains in recent times,” it said.


This article appeared in The Edge Financial Daily, September 28, 2009.