Dismal performance: Mini-budget fails to spark rally, banking stocks come under pressure

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The RM60 billion mini-budget unveiled by Deputy Prime Minister and Finance Minister Datuk Seri Najib Razak last Tuesday failed to spark a rally on the local bourse. Instead, the Kuala Lumpur Composite Index (KLCI) saw a three-day losing streak before rebounding to make some gains last Friday.

The KLCI ended the week at 843.45 points, up 5.06 points or 0.6% from Thursday’s close of 838.39 points, in tandem with the performance of key regional bourses following a rally in the Dow Jones Industrial Average to above 7,170 points for the first time in 10 days.

However, for the week, the benchmark KLCI fell 14.77 points or 1.7% from the previous Friday’s close of 858.22 points. Adding to the dismal market performance was the 20.2% year-on-year fall in the country’s industrial output for January. The contraction was slightly higher than consensus estimates of 19.8%.

Banking stocks came under selling pressure during the week, with Malayan Banking Bhd (Maybank) and Public Bank Bhd being among the hardest hit. Maybank plunged 11.9% during the week to close at RM4 last Friday while Public Bank fell 10.6% week on week to RM7.15 last Friday.

“I think there are growing concerns about Malaysian banking stocks and the health of the economy,” says Vincent Khoo, head of research at Maybank Investment Bank Bhd (Maybank-IB).

He adds that the just-concluded Palm and Lauric Oils Conference also signalled a bearish outlook for crude palm oil (CPO) prices. The benchmark three-month CPO futures closed at RM1,975 per tonne last Friday, up RM35 or 1.8% w-o-w.

Major regional indices advanced last Friday. Japan’s Nikkei 225 jumped 371.03 points or 5.15% to 7,569.28 points, Hong Kong’s Hang Seng Index gained 524.27 points or 4.37% to 12,525.8 points while Singapore’s Straits Times Index was up 83.99 points or 5.62% to 1,577.52 points.

This week, says Khoo, the local stock market should see a “slight upside” in view of the improved sentiment on the US stock market after Citigroup Inc’s CEO Vikram Pandit said the bank made money in the first two months of the year.

However, Kenanga Investment Bank Bhd’s head of research Yeonzon Yeow expects the KLCI to tread lower this week, given that a lot of focus is still on the upcoming Umno party elections.

“The weakness (of the stock market) also arises from the rights issues by Maybank and TM International Bhd. Investors are not too keen on the rights issues, especially Maybank’s,” he says. “The KLCI will try to test the 820-point level. If it falls below 820, we are looking at support at 780 points.”

Meanwhile, Maybank-IB’s head of retail research and chief chartist Lee Cheng Hooi says the index should see immediate support at 833 points and strong support at 801 points. He pegs the immediate resistance level for the KLCI at 850 points and strong resistance at 867 points.

Economic data to be released this week are the manufacturing sales for January, Bank Negara Malaysia’s foreign reserves as at March 16 and the Consumer Price Index for February.

This article appeared in The Edge Malaysia, Issue 746, March 16-22, 2009