Bursa to look to China, Bernanke for direction

Trading on Malaysia's stock market is expected to be more robust this week as investors and dealers return from the Lunar New Year holidays.



However, analysts and fund managers find it difficult to gauge the market's direction, saying much would depend on how Asia, particularly China, reacts to recent developments in the US.

Late last week, the US Federal Reserve (Fed) unexpectedly increased its discount rate - the rate it charges banks for emergency loans - for the first time in over three years.

This was seen as a change in its "easy money" stance and indicated it may start moving towards the exit of stimulus measures that were put in place at the peak of the financial crisis.

"This move doesn't have much of a direct impact on Asia Pacific, but there are implications. People will view the withdrawal of stimulus as being sooner than expected and for the short term, this is negative news for stock markets," said Choo Swee Kee, chief investment officer at TA Investment Management Bhd.



He said there were concerns that the US economy, the largest in the world, may not be strong enough to stand on its own if stimulus measures were withdrawn too early.

China's stock markets, which were closed all of last week for the Lunar New Year, are set to re-open today.

"We'll have to see China's reaction to this, as there has been talk that it may be considering tightening its monetary policy," Choo remarked. Any such action would be a "double-negative" for equity markets, he said.

The region will also be keeping a close watch on Fed chairman Ben Bernanke's semi-annual report on its monetary policy on Wednesday, for clues on where the US economy is headed.

The Fed raised the discount rate by a quarter-percentage point to 0.75 per cent as at last Friday.

Asian markets were spooked, and the Dow Jones Industrial Average slipped in initial reaction, but then ended in positive territory for the fourth straight day. It closed 0.1 per cent higher to 10,402.35, its highest in a month.

The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) slid 1.33 points last Friday to 1,257.67. It was a short trading week (the market was closed on Monday and Tuesday) and despite many investors and brokers being on holiday for the Lunar New Year, the market surprisingly closed higher on Wednesday, then fell over the next two days on profit-taking.

OSK Research said its near-term market outlook continued to be bearish, although it acknowledged that there could be a major change in trend going forward.

"We still think it is too early to change our view towards the nearer term outlook although the key index has taken out the short-term downtrend," its technical analyst said in a report last Friday.

It sees immediate resistance for the index at the 1,260 level, followed by the 1,272 level. To the downsideimmediate support may be found at the recent low of 1,224 points, the analyst said.