Lower liner property counters like Hua Yang, Mah Sing and UOA Development should enjoy gains in the immediate term, given their strong upside bias, says a head of research
Shares on Bursa Malaysia climbed last week, lifting the blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) to a two-month high on external strength following better-than-expected economic data and positive outcome from the EU finance ministers' summit on October 26.
The expansion of the euro-zone bailout fund to €1 trillion, agreement by bondholders to take a 50 per cent haircut on Greek debt and robust US economic growth collectively boosted global equities, due to relief over the decisive action taken by EU leaders to prevent a debt contagion.
Subsequently, the FBM KLCI surged 42.99 points, or 3 per cent to end the week at 1,481.82, with Genting Bhd (+85 sen), Tenaga (+40 sen), Sime Darby (+35 sen), CIMB (+27sen) and Petronas Chemical (+40 sen) contributing to 60 per cent of the index's rise.
The average daily traded volume and value increased marginally to 1.486 billion shares and RM1.77 billion respectively, compared with the 1.478 billion shares and RM1.32 billion average the previous week, as trading momentum focused on lower liner penny stocks while blue chips showed slowdown in buying interest.
Agreement on affirmative actions to resolve the euro debt crisis and the fact that the US gross domesticproduct (GDP) grew at a stronger 2.5 per cent annual rate in the third quarter compared to a mild 1.3 per cent expansion a quarter earlier allayed concerns about a double dip the US and raised appetite for risky assets last week.
Raising the bailout amount to €1 billion will provide more clout to deal with the recapitalisation of European banks while the 50 per cent haircut will provide Greece more breathing space to manoeuvre itself out from under the debt crisis.
Nevertheless, it is yet to be seen how these eurozone countries will contribute to the bailout fund without affecting their credit ratings with countries like Italy forced to pay a higher interest (indicating rising default risk) in a recent bond auction that underperformed expectations.
This is an important week as more details on the Euro bailout measures are expected to emerge after the meeting of Group 20 leaders in Cannes, France this Thursday and Friday.
There are also expectations that the US Federal Reserve will reveal more hints about the third quantitative easing when it meets over the next two days. It is unlikely for the central bank to launch a third quantitative easing (QE) in the immediate term with unwavering recent economic data and the absence of deflationary pressure.
The ISM manufacturing, factory orders, non-farm payrolls and unemployment data that will be released this week could shed more clues on US Fed's next action in coming months.
On the home front, the index, in the absence of any negative news externally, may continue to chalk some gains early this week albeit at a slower pace before consolidation sets in later as short-term technical indicators have turned increasingly overbought. Rotational plays into lower liners are expected to continue with many small cap plays in the construction, property, consumer and oil & gas sectors trading at attractive valuations.
Oil & Gas sector deserves a special mention with Petronas indicating 22 marginal fields are available for development and it is giving free hands to interested oil & gas players to submit proposals by 1Q2012 before awarding them in the next three months.
The merger between SapuraCrest and Kencana place them in a stronger footing to bid for more contracts in the future and undoubtedly both these stocks are trading at undemanding valuations. Petronas' admission would lead to more M&A activities in the sector where smaller players, which are trading at a single digit forward price-to-earnings ratio, will be forced to consolidate and improve their competitiveness.
Technical outlook
Spot month October KLCI futures contract traded on Bursa Malaysia Derivatives Berhad was up a huge 47.5 points week-on-week to 1,476.5, reducing to a 5.32-point discount to the cash index, compared to the large 9.83-point discount the previous Friday.
The local stock market climbed on Monday, copying regional strength on stronger-than-expected economic data from China and Japan and after European leaders moved closer to overhaul the region's sovereign debt crisis.
The key index gained 11.19 points to settle at 1,450.02, off an opening low of 1,449.10 and early high of 1,462.06. Stocks fell into profit-taking congestion mode the next day as investors stayed sidelined ahead of the Deepavali holiday break and await the conclusion of the EU finance ministers' summit on October 26.
Still, the FBM KLCI ended up 7.78 points at the day's high of 1,457.8 due to late spurts on select index heavyweights, and off a low of 1,448.12.
The local market rose on Thursday along with strong regional gains on hopes China may soon ease monetary policy to support economic growth and on reports European leaders have agreed on writing down Greek's debt.
The index rose 13.13 points to settle at 1,470.93, off a high of 1,474.27, on robust volume totaling 1.88 billion shares worth RM2.41 billion.
The market extended gains ahead of the weekend, fueled by the strong overnight rally on US and European markets following the expansion of the euro-zone bailout fund to ?1 trillion and robust US economic growth.
The index added 10.89 points to end the week at 1,481.82, off an early high of 1,488.2 and low of 1,478.15, as gainers edged losers by 470 to 338 on strong turnover of 1.88 billion shares worth RM2.3 billion.
Trading range for the FBM KLCI was 40.08 points last week, compared with the 94.3-point range the previous week caused by the sharp intra-day dip to extreme low of 1,371, due to late programme selling from a foreign broker the previous Friday.
For the week, the FBM-EMAS Index advanced 310.41 points to 10,117.36, while the FBM-Small Cap Index climbed 318.19 points to 11,501.27, as lower liners in the construction, oil & gas and property sectors rallied to outperform the broader market.
The daily slow stochastics indicator for the FBM KLCI reissued a buy signal at the overbought zone early last week, confirming the buy signal from the oversold region on the weekly indicator.
The 14-day Relative Strength Index (RSI) indicator climbed higher to above the 60-point mark, while the 14-week RSI listed a positive reading just above 50.
Meantime, the daily Moving Average Convergence Divergence (MACD) trend indicator's signal line extended higher above the zero line to reinforce a bullish trend, while the weekly MACD signal line continued hooking up to suggest more upward momentum.
The 14-day Directional Movement Index (DMI) trend indicator will see the -DI line crossing back below the +DI line to trigger a buy signal on further strength, but the ADX line continued inching lower, confirming a trendless market.
Conclusion
Given the further improvement on momentum and trend indicators for the benchmark index, the local stock market should show upside resilience this week, even as short-term momentum becomes more overbought.
As such, profit-taking dips are likely to be shallow as investors should be more confident to return and bargain stocks, especially those in the construction, property and oil & gas sectors which have suffered losses in recent weeks.
Moreover, improvement on the eurozone debt situation following the decisive action taken by EU leaders to boost its rescue fund to €1 trillion as bondholders agreed to a relatively mild 50 per cent haircut on Greek debt, as well as stronger-than-expected US and Chinese economic data, should combine to boost sentiment further.
Hence, blue chips such as CIMB, Gamuda, Genting Bhd, RHB Capital and MMHE at current levels are good to accumulate for further upside potential in the medium term, while lower liner property counters like Hua Yang, Mah Sing and UOA Development should enjoy gains in the immediate term, given the strong upside bias after stock prices have been heavily and unfairly sold down in recent weeks.
On the other hand, investors should look to take profit or sell AirAsia and Supermax, since both register overbought RSI reading of above 70.
On the index, immediate resistance comes from 1,488, the 61.8per cent Fibonacci Retracement (FR) of the sell-off from the 1,597 record high of July 11 to the recent pivot low of 1,310 on September 26, matching last Friday's high.
A breakout going forward would see stronger resistance from the 100-day and 200-day moving averages at 1,495 and 1,512 respectively, being challenged, while the 76.4 per cent FR at 1,529 would act as a formidable upside barrier.
Immediate support on profit-taking dips will be at 1,454, the 50 per cent FR, with better retracement support at 1,420, the 38.2 per cent FR, followed by 1,400 and then 1,378, the 23.6 per cent FR.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.
Shares on Bursa Malaysia climbed last week, lifting the blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) to a two-month high on external strength following better-than-expected economic data and positive outcome from the EU finance ministers' summit on October 26.
The expansion of the euro-zone bailout fund to €1 trillion, agreement by bondholders to take a 50 per cent haircut on Greek debt and robust US economic growth collectively boosted global equities, due to relief over the decisive action taken by EU leaders to prevent a debt contagion.
Subsequently, the FBM KLCI surged 42.99 points, or 3 per cent to end the week at 1,481.82, with Genting Bhd (+85 sen), Tenaga (+40 sen), Sime Darby (+35 sen), CIMB (+27sen) and Petronas Chemical (+40 sen) contributing to 60 per cent of the index's rise.
The average daily traded volume and value increased marginally to 1.486 billion shares and RM1.77 billion respectively, compared with the 1.478 billion shares and RM1.32 billion average the previous week, as trading momentum focused on lower liner penny stocks while blue chips showed slowdown in buying interest.
Agreement on affirmative actions to resolve the euro debt crisis and the fact that the US gross domesticproduct (GDP) grew at a stronger 2.5 per cent annual rate in the third quarter compared to a mild 1.3 per cent expansion a quarter earlier allayed concerns about a double dip the US and raised appetite for risky assets last week.
Raising the bailout amount to €1 billion will provide more clout to deal with the recapitalisation of European banks while the 50 per cent haircut will provide Greece more breathing space to manoeuvre itself out from under the debt crisis.
Nevertheless, it is yet to be seen how these eurozone countries will contribute to the bailout fund without affecting their credit ratings with countries like Italy forced to pay a higher interest (indicating rising default risk) in a recent bond auction that underperformed expectations.
This is an important week as more details on the Euro bailout measures are expected to emerge after the meeting of Group 20 leaders in Cannes, France this Thursday and Friday.
There are also expectations that the US Federal Reserve will reveal more hints about the third quantitative easing when it meets over the next two days. It is unlikely for the central bank to launch a third quantitative easing (QE) in the immediate term with unwavering recent economic data and the absence of deflationary pressure.
The ISM manufacturing, factory orders, non-farm payrolls and unemployment data that will be released this week could shed more clues on US Fed's next action in coming months.
On the home front, the index, in the absence of any negative news externally, may continue to chalk some gains early this week albeit at a slower pace before consolidation sets in later as short-term technical indicators have turned increasingly overbought. Rotational plays into lower liners are expected to continue with many small cap plays in the construction, property, consumer and oil & gas sectors trading at attractive valuations.
Oil & Gas sector deserves a special mention with Petronas indicating 22 marginal fields are available for development and it is giving free hands to interested oil & gas players to submit proposals by 1Q2012 before awarding them in the next three months.
The merger between SapuraCrest and Kencana place them in a stronger footing to bid for more contracts in the future and undoubtedly both these stocks are trading at undemanding valuations. Petronas' admission would lead to more M&A activities in the sector where smaller players, which are trading at a single digit forward price-to-earnings ratio, will be forced to consolidate and improve their competitiveness.
Technical outlook
Spot month October KLCI futures contract traded on Bursa Malaysia Derivatives Berhad was up a huge 47.5 points week-on-week to 1,476.5, reducing to a 5.32-point discount to the cash index, compared to the large 9.83-point discount the previous Friday.
The local stock market climbed on Monday, copying regional strength on stronger-than-expected economic data from China and Japan and after European leaders moved closer to overhaul the region's sovereign debt crisis.
The key index gained 11.19 points to settle at 1,450.02, off an opening low of 1,449.10 and early high of 1,462.06. Stocks fell into profit-taking congestion mode the next day as investors stayed sidelined ahead of the Deepavali holiday break and await the conclusion of the EU finance ministers' summit on October 26.
Still, the FBM KLCI ended up 7.78 points at the day's high of 1,457.8 due to late spurts on select index heavyweights, and off a low of 1,448.12.
The local market rose on Thursday along with strong regional gains on hopes China may soon ease monetary policy to support economic growth and on reports European leaders have agreed on writing down Greek's debt.
The index rose 13.13 points to settle at 1,470.93, off a high of 1,474.27, on robust volume totaling 1.88 billion shares worth RM2.41 billion.
The market extended gains ahead of the weekend, fueled by the strong overnight rally on US and European markets following the expansion of the euro-zone bailout fund to ?1 trillion and robust US economic growth.
The index added 10.89 points to end the week at 1,481.82, off an early high of 1,488.2 and low of 1,478.15, as gainers edged losers by 470 to 338 on strong turnover of 1.88 billion shares worth RM2.3 billion.
Trading range for the FBM KLCI was 40.08 points last week, compared with the 94.3-point range the previous week caused by the sharp intra-day dip to extreme low of 1,371, due to late programme selling from a foreign broker the previous Friday.
For the week, the FBM-EMAS Index advanced 310.41 points to 10,117.36, while the FBM-Small Cap Index climbed 318.19 points to 11,501.27, as lower liners in the construction, oil & gas and property sectors rallied to outperform the broader market.
The daily slow stochastics indicator for the FBM KLCI reissued a buy signal at the overbought zone early last week, confirming the buy signal from the oversold region on the weekly indicator.
The 14-day Relative Strength Index (RSI) indicator climbed higher to above the 60-point mark, while the 14-week RSI listed a positive reading just above 50.
Meantime, the daily Moving Average Convergence Divergence (MACD) trend indicator's signal line extended higher above the zero line to reinforce a bullish trend, while the weekly MACD signal line continued hooking up to suggest more upward momentum.
The 14-day Directional Movement Index (DMI) trend indicator will see the -DI line crossing back below the +DI line to trigger a buy signal on further strength, but the ADX line continued inching lower, confirming a trendless market.
Conclusion
Given the further improvement on momentum and trend indicators for the benchmark index, the local stock market should show upside resilience this week, even as short-term momentum becomes more overbought.
As such, profit-taking dips are likely to be shallow as investors should be more confident to return and bargain stocks, especially those in the construction, property and oil & gas sectors which have suffered losses in recent weeks.
Moreover, improvement on the eurozone debt situation following the decisive action taken by EU leaders to boost its rescue fund to €1 trillion as bondholders agreed to a relatively mild 50 per cent haircut on Greek debt, as well as stronger-than-expected US and Chinese economic data, should combine to boost sentiment further.
Hence, blue chips such as CIMB, Gamuda, Genting Bhd, RHB Capital and MMHE at current levels are good to accumulate for further upside potential in the medium term, while lower liner property counters like Hua Yang, Mah Sing and UOA Development should enjoy gains in the immediate term, given the strong upside bias after stock prices have been heavily and unfairly sold down in recent weeks.
On the other hand, investors should look to take profit or sell AirAsia and Supermax, since both register overbought RSI reading of above 70.
On the index, immediate resistance comes from 1,488, the 61.8per cent Fibonacci Retracement (FR) of the sell-off from the 1,597 record high of July 11 to the recent pivot low of 1,310 on September 26, matching last Friday's high.
A breakout going forward would see stronger resistance from the 100-day and 200-day moving averages at 1,495 and 1,512 respectively, being challenged, while the 76.4 per cent FR at 1,529 would act as a formidable upside barrier.
Immediate support on profit-taking dips will be at 1,454, the 50 per cent FR, with better retracement support at 1,420, the 38.2 per cent FR, followed by 1,400 and then 1,378, the 23.6 per cent FR.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.
