KUALA LUMPUR: Investors should brace for more profit taking after the Asian markets underwent a technical correction on May 14 but the KL Composite Index should hold above the 1,000 level. The firmer close on Wall Street overnight could help give sentiment a boost.

External factors including the health of the US economy would weigh on investors’ sentiment, according to analysts.

Longtime technical analyst Robert Prechter, who forecast the 1987 stock market crash, predicted this week that U.S. equities may plunge to half their lows hit in March as a deflationary depression bites.

Oil and U.S. Treasury bonds are also locked in long term bear markets, while corporate bond prices will plunge precipitously by next year as broad economy, banking system and company earnings sustain more damage from a financial crisis that's akin to the Great Depression, he was quoted as saying by Reuters.

The head of research at MIDF Investment Bank Zulkifli Hamzah said the market had undergone a technical correction after the strong run-up, especially in April where Bursa Malaysia was the best performer among Asian markets.

However, on a year-to-date basis, the KLCI is up 15.43%, Shanghai’s Composite Index almost 45%, Singapore’s Straits Times Index 21%, Hang Seng Index 14.97% and the Nikkei 225 only 2.64%.

Zulkifli said the correction is to be expected, he said, adding profit taking was seen on the second and third liners.

On the economy, he said the economy was not shrinking and the worst could be over. AmResearch concurs that although recent data on manufacturing output suggested a worst GDP growth in 29 quarters, slowing pace of declines in exports and IPI suggest worst may be over with worst case scenarios becoming academic.

"But we maintain our forecast of -4.0% for 1Q09, given declines in exports and slower growth in private sector activities. Given the severity, we expect turnaround to be more gradual and positive data should only be evident sometime late 3Q or early 4Q this year.

Stocks to watch include Bumiputra-Commerce Holdings Bhd (BCHB) Group, Malaysia Building Society Bhd (MBSB), MISC Bhd, Unisem and plantation stocks. 

Meanwhile, MBSB returned to the black in the first quarter ended March 31, 2009 with net profit of RM5.8 million after posting net loss of RM9.15 million in the preceding quarter ended Dec 31.

Unisem posted net loss of RM23.1 million in the first quarter ended March 31, a stark contrast from the profit of RM23.1 million a year ago. Revenue fell 41% to RM180.68 million from RM310.68 million due to reduced sales volume following the global economic slowdown.

However, Unisem said the company was upbeat about the remaining quarters and expected revenue and earnings to improve substantially in the second quarter.

“The business of the Group is also expected to remain profitable for the remaining period to the end of the financial year,” it said confidently.

As for MISC, it had teamed up with Petronas International Corp Lt and Mustang Engineering Ltd to provide floating liquified natural gas (LNG) solutions and services worldwide as MISC seeks to be a leader in LNG transportation.

Meanwhile, crude palm oil futures for third month delivery fell RM80 to RM2,655, off the day’s low of RM2,648, tracking declines in crude oil and soybeans on concerns the 11-week rally was overdone.

IOI Corp executive chairman Tan Sri Lee Shin Cheng had said that palm oil yield would decline by 5% due to the warm spell and this would prices to RM3,000 in the near term, pending rising overseas demand.