Economic data to determine KLCI rally

Many analysts feel the Malaysian stock market has run ahead of its fundamentals and a breather is overdue

ANALYSTS and fund managers are uncertain that the stock market has reached the end of its three-month market rally, saying it would depend on upcoming economic indicators from the US and at home.

Economic data coming out of the US and at home over the near term would determine if yesterday's pullback is temporary or the start of a long consolidation, they said.The Kuala Lumpur Composite Index (KLCI), which has gained some 30 per cent since the rally started, snapped four straight days of gains yesterday, easing 1.6 per cent to 1074.12.This was in line with falls in the regional market after Wall Street's worst performance in over a month.

"I think the market needs a consolidation after recent strong gains. If there's good news coming out, this pullback may be temporary. Otherwise, it may turn out to be a real consolidation," remarked Ang Kok Heng, chief investment officer at Phillip Capital Management.

Wall Street fared poorly on poor economic data and investors were left wondering how long it would take for the economy to show clear signs of recovery.At home, market breadth was negative, with 605 counters down and only 145 up and 172 unchanged.

Many analysts feel the market has run ahead of its fundamentals and a breather is overdue."Most investors were not willing to take on fresh positions on growing scepticism on the sustainability of the rally, which has clearly run ahead of fundamentals," OSK Research said.

Market valuations are expensive and domestic institutional investors in particular are nervous at this sort of high levels, said Maybank Investment Bank (MIB).MIB nevertheless believes that there's "still a bit more of money to be made" in this market, but in selected sectors, its head of research Andrew Lee said, declining to elaborate.

Meanwhile, investors should look out for US economic data over the next two weeks and Malaysia's consumer price index (CPI) data which will be released today.Market consensus is that the CPI will hit a new low for May, OSK said.

Its technical analyst said the 1,093-point level remains the immediate resistance for the KLCI, with the next resistance seen at 1,100.Support is seen at the 1,067 point-level, followed by 1,056.Major stock markets in Asia fell, led by Vietnam (-4.3 per cent), except for those in China and India, which rose marginally.