KUALA LUMPUR (Dec 6): The FBM KLCI is expected to stage an oversold rebound next week in line with most global markets.
An unusually strong U.S. jobs report lifted the dollar to a five-and-a-half-year high against a basket of currencies on Friday and drove stocks higher, led by financial shares, according to Reuters.
U.S. bond prices dropped, pushing short-term yields to their biggest single-day rises in nearly four years as investors priced in a U.S. interest rate hike by mid-2015, it said.
The Dow and S&P 500 closed a seventh straight weekly advance on Friday as a better-than-expected jobs report indicated strong economic growth, but perhaps to the point where interest rates could rise sooner than previously anticipated, said Reuters.
AffinHwang IB vice president and head of retail research Datuk Dr Nazri Khan said following the mild strength of the global stocks, he expects the local FBM KLCI to eventually follow other Asian markets and stage an oversold rebound (after declining 7.5% over the last four months due to softening of ringgit & commodities).
“We believe the FBM KLCI is likely to have milder upside next week (albeit with a more volatile session), tracking more bargain hunting rebound, growing fiscal stimulus hopes (Europe, Japan and China), positive global economic data and upside swings of Wall Street and Asian regional indices,” he said.
Nazri said the coincident upturn in USA, China and Eurozone manufacturing PMIs (strongest since June 2013 possibly due to corporate restocking) were encouraging and would provide short term lift to the broad market as investors digest that global economic momentum is still robust this year.
He said the local equity markets however failed to hold above 1,750 support level despite hope for a positive December holiday sales period and further improvement in upcoming year end shopping sentiment.
Nazri, who is also the president of the Malaysian Association of Technical Chartists, said a decent 7.5% correction in the local index from its record high of July 8, 2015, oversold technical positioning and cheaper market valuations leave the index increasingly vulnerable for a quick trading accumulation.
He said further strength above the 1,770 resistance would open the charts up for a larger rally toward 1,800 while a break down below 1,730 would suggest more setbacks towards 1,700 levels.
“On the domestic front, we note that the local index has rallied to an all time-high of 1,896.23 level in July but ever since has been moving downwards until last week when it broke below the psychological threshold of 1,800 points.
“Despite the foreign outflow and selloff seen in Bursa and Ringgit (-7.5% & -9.2%), local market is still holding up largely due to Bursa defensive appeal, resilient current account surplus, higher yield and its lower vulnerability to foreign investor withdrawals,” he said.
Nazri expects the selling momentum to subside riding on three factors (1) Bursa resilience and defensive appeal (as it did during the past global uncertainties) (2) More rotation play towards small cap stocks as can be seen by the outperformance of FBMSmallCap and FBMFledgling Indices (3)
He said ther could also be portfolio rebalancing with institutional funds positioning ahead of the year end window dressing activities.
Meanwhile on the news front, he said there were plenty of business news which would catalyse Bursa market next week.
“On the technical front, despite the breakdown below 1800 psychological level, the FBM KLCI now remains in a long term monthly uptrend (barring any close below 1700 level).
“Since hitting a new record high in July (1,826.22 points, a yearly gain of 8.9%), the local index has declined 7.5% which is an ideal healthy correction for the strong uptrend seen since October 2008,” he said.
Nazri said given the oversold market situation, he expects the weakness to be temporarily stretched (Bursa has recorded five straight week of decline).
“As for strategy next week, we are recommending aggressive investors to short index futures on strength (near 1,770 level, positioning for another test lower) while conservative investors should stick with blue chips that possess resilient business models and momentum capacity to rebound on event play (Festive Season & Budget 2015) after the recent sell-off.
“These include the likes of services, banks, technology and consumers stocks such as Sime Darby Bhd, Hap Seng Plantations Bhd, Unisem (M) Bhd, AirAsia Bhd, Axiata Group Bhd, DiGi.Com Bhd, Tenaga Nasional Bhd, Malayan Banking Bhd, Telekom Malaysia Bhd, Masterskill Education Grooup Bhd, Malaysian Building Society Bhd and Nestle (M) Bhd,” he said.