KUALA LUMPUR (Jan 25): The FBM KLCI is expected to dip in thin pre-holiday trade next week, ahead of the extended weekend for the Chinese New Year and Federal Territory Day holidays.
Elsewhere, U.S. stocks could be set for another selloff next week as the Federal Reserve is expected to announce it will keep withdrawing its economic stimulus, further pressuring equities already roiled by a flight from emerging markets, according to Reuters.
Affin IB vice president and head of retail research Dr Nazri Khan said that going forward, he expects the local stock market to dip further dampened by emerging market currency roil (led by record low Argentina Peso, Turkey Lira) & weaker ringgit (USD/MYR 3.3371 the weakest level since August 28, 2013), thin holiday session, and negative reading of USA & Chinese manufacturing data suggesting a temporary cooldown in the world's largest & second-largest economy.
Nazri said that Asian equities trend downward as emerging markets currency rout sparked fresh jitters about funds outflow and developing countries economic momentum.
He said the FBM KLCI had tested 1,800 psychochological level three times last week and seemed not to have enough bullish inertia to follow through.
Nazri said barring any FBM KLCI close below 1,750, any weakness was viewed as an opportunity to re-enter cheaper as both fundamentals and technical uptrendline remains sound and intact.
He said that on the technical front, the daily stochastics had crossed over down which was a bearish indication.
He said momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out, adding that a negative signal for trend short-term was given on the convergence of 20 and 50 day moving average.
Nazri said the FBM KLCI should extend its the near-term downtrend (sixteenth straight down days since Dec 31, 2013 when it high record high of 1882.20).
He said that year-to-date, the FBMKLCI already lost 3.4% or 65 points with average weekly losers thrash gainers 5 to 3 on rising trade totalling 1.5bn shares worth RM2 billion.
“The index appears to have potential to overtake support for a deeper corrective setback toward the near term support of 1,780 level.
“Meanwhile, we are pegging near term resistance comes in at 1,820 and 1,830 levels. We reiterate that at least FOUR prime factors should cushion market weakness and underpin strong investment growth momentum namely (1) the upcoming rollout major infrastructure under 2014 ETP (High Speed Broadband Phase 2 and MRT2), (2) regional development corridors (SCORE and Iskandar) (3) Petronas expected RM60 billion capital expenditure plan (RAPID Pengerang) and (4) stronger pipeline of 2014 IPO (15 upcoming IPO worth RM20 billion including 1MDB, Naza TTDI Properties, Iskandar Waterfront & Malakoff).
“As for strategy, traders should look beyond the current weakness and aggressively position for potential 2014 market leaders namely oil gas (ETP Play) and technology stocks (USA Recovery Play) which includes our Top Ten Picks ie. UMW Oil Gas, Dayang, Uzma, Coastal, Yinson, Perdana Petroleum, Gtronics, MPI, Unisem and Iris. Aggressive traders might also consider capitalizing on temporary volatility by purchasing index futures or accumulating medium term global index call options,” he said.