The FBM Kuala Lumpur Composite Index moved sideways in lacklustre trading last week. The benchmark index dropped 3.8 points over the holiday-shortened week to close at 1,217.4 points last Friday.
Elsewhere in the region, the Hang Seng Index shed 599 points or 2.8% during the week while the Straits Times Index inched up 0.6% to 2,662.8 points. The Nikkei 225 fell 104.6 points or 1% to 10,265.9 points.
Nomura Holdings Inc, Japan’s largest securities firm, announced a US$5.6 billion share sale last Thursday, which sent its share price plunging 15.9% the next day, dragging the other financial stocks down.
Most markets in the region started the week on a weak note following disappointing US housing data and lower prices for metals and crude oil later in the week.
“I wouldn’t be surprised if we have seen the peak of the market for this year because the economic news isn’t going to improve very much,” says Marc Faber, the editor of the Gloom, Boom, Doom report, in an interview with Bloomberg.
Trading volume on the local bourse was thin during the three days as most investors were still away on the Hari Raya Aidilfitri break. Dealers say some institutional fund managers, especially of government-linked funds, were still on Hari Raya leave.
Apart from the holidays, the lack of buying interest also contributed to low trading volume last week. “The market is getting ‘tired’ of the recovery story. It is at a crossroads now, awaiting fresh catalysts. Many institutional investors are on the sidelines,” says TA Investment Management Bhd’s chief investment officer Choo Swee Kee.
“Our view of the market is that current valuations look a bit rich now. As a result, the market is due for a correction. On the other hand, we are also aware of ample liquidity that could lift the market further,” he adds.
Choo says the local bourse, which is taking its cue from news flow, could swing either way. Also, Budget 2010, which will be tabled on Oct 23, may provide the market an impetus.
Citigroup, in a research note, says there is talk of a targeted 15% reduction in operating expenditure, which if successful, would cut the country’s deficit to GDP by 3.3 percentage points. Its economist Wei Zheng Kit expects the cost-cutting to be achieved through subsidy cuts and a more efficient open tender process for government contracts.
“Both of these could be politically challenging,” he says, adding that the divestment of equity stakes in government-linked companies could be a source of funding.
This week, analysts expect the market to be directionless if the absence of major local and foreign news continues. “The local bourse is expected to drift listlessly with a marginal downward bias amid slow trading activity ahead,” says HwangDBS Vickers.
In the commodity market, crude palm oil futures closed slightly lower at RM2,186 per tonne last Friday versus RM2,190 the previous Friday.
The ringgit continued to strengthen against the US dollar last week. It closed at 3.47 against the greenback compared with 3.4751 the previous Friday. The local currency has appreciated nearly 1.5% this month.
This article appeared in Capital page of The Edge Malaysia, Issue 774, Sep 28-Oct 4, 2009