US stocks climbed and sent the S&P 500 index to its highest level since end-October 2011, amid signs that manufacturing output is increasing from China to Australia and America. Manufacturing across the globe showed improvement in December, suggesting that production is weathering strains from Europe’s debt crisis.
In the US, a report showed factory output grew at the fastest pace in six months.
Australian manufacturing expanded for the first time in six months while similar Chinese and German data surpassed economist estimates recently, too. Another report showed construction spending in the US rose in November for a third time in four months.
Locally, the FBM KLCI traded in a listless sideward price range of 23.05 points with consistent volumes (of 1.61 billion to 1.67 billion shares) done. The market rose in a listless manner yesterday on minor nibbling activities in some key blue chip stocks.
Some minor local buying lifted the market especially yesterday, after post window-dressing profit-taking activities on Tuesday and Wednesday.
The index closed at 1,514.43 yesterday, up 10.21 points from the day before as blue chip stocks like CIMB Group Holdings Bhd, DiGi.Com Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd and Petronas Chemicals Group Bhd inched up in afternoon buying activities.
The recent upward market action for the KLCI since Dec 21, 2011 has now caused the daily price bars to remain marginally above the 18-, 40- and 200-simple moving average line (SMA). The obvious support levels are seen at 1,487, 1,502 and 1,514 while the key resistance levels are seen at 1,525, 1,530 and 1,597.
Due to the potentially volatile global markets, we believe that investors should remain cautious and take a short-term view of the market. The current rebound may still be viewed as a “bear market relief rally”. From the all-time high of 1,597.08 (July 2011) to the 1,310.53 swing low (September 2011), the index surpassed the 1,500-psychological mark to a temporary high of 1,530.73 (December 2011).
Despite surpassing the 200-SMA level of 1,501.52 currently, the indicators like the MACD Histogram and Oscillator depict bearish divergence signals — indicating waning upside on the strength, depth and breadth of the index components.
Our stock in focus this week is UEM Land Holdings Bhd — the flagship company of the real estate investment and development business of UEM Group which is wholly-owned by Khazanah Nasional Bhd. The counter was admitted into the FBM KLCI 30 benchmark index on Dec 19, 2011.
Since then, the stock has risen from RM2.25 until it reached a high of RM2.47 on Dec 23. After that high, it fell to its last traded price of RM2.28. It is now undertaking the development of Nusajaya into a regional city with diverse catalyst developments to create and promote economic growth and development in the area.
UEM Land recently released its 3Q results for FYE11. It recorded a lower revenue of RM290.8 million compared with RM372.8 million for the previous quarter mainly due to weaker contribution from the overall developments. Second, it saw weaker industrial land sales of RM84.2 million against RM122.1 million in the preceding quarter due to stronger sales performance for the Southern Industrial & Logistics Clusters (SiLC) project.
Our Maybank IB fundamental analyst expects increasingly tougher competition in the property market, especially in the office segment due to massive government land developments.
These projects, which have similar concepts as UEM Land’s Aurora Tower and developments in Mont’ Kiara, could flush the market with ample supply of varieties, boost take-up/occupancy risks and limit pricing power.
Currently, Maybank IB has a “hold” call on UEM Land with a target price of RM2.02.
There are 14 other research houses that cover the counter of which there are 10 “buy” calls, three “hold” and one “sell”.
UEM Land’s share price made a key daily and major Wave-5 high at RM3.40 (Jan 13, 2011), with grossly overbought and bearish divergent signals. Since that high, it plunged to a recent low of RM1.54 on Sept 26 (a bad loss of 54.7% in about a nine-month time frame).
Look to sell UEM Land on any rallies to its resistance areas as the moving averages depict a neutral trend for this stock, which eventually would succumb to further selling activities on high volume. The high of RM2.47 represents the 50% retracement level (from RM3.40 to RM1.54) and immediate key resistance for this stock.
The daily indicators (like the MACD and Stochastic) are firmly negative and now depict the obvious indications of UEM Land’s eventual weakness.
We expect UEM Land to remain weak on any rebound or retracement to its resistance levels of RM2.28, RM2.47 and RM2.58. It will attract some major selling at those levels. The weaker support levels are at RM1.54, RM2 and RM2.22. Our technical downside targets for UEM Land are RM1.54, RM1.74 and RM2.
In our 1Q12 strategy piece released recently, we favour some Asean countries for investments in 2012. They are Indonesia and Thailand.
Do attend our Maybank IB event next Saturday (Jan 14 at 8.30am) at the Securities Commission to hear what our regional research heads’ top sectors and picks are in those countries.
Lee Cheng Hooi is head of retail research at Maybank Investment Bank. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgment or seek professional advice for your investment decisions. Technical report appears every Wednesday and Friday.
