Volume plunged to 586.24 million shares, a mere third of the average daily volume last month.

The bellwether FTSE Bursa Malaysia KLCI (FBM KLCI) ended almost flat at 1,066.36 points, after drifting in a tight 7.6-point range.

A 25-sen fall in Bumiputra-Commerce Holdings Bhd (BCHB), which has the largest weighting on the FBM KLCI, dragged the benchmark down 2.97 points. It took gains at Public Bank Bhd, Sime Darby Bhd, Astro All Asia Networks plc, Hong Leong Bank Bhd and YTL Corp Bhd to counter the decline.

The broader FBM 100 managed to add 12.8 points, or 0.18%, to close at 6,988.39, despite crude palm oil (CPO) futures sliding below RM2,100 per tonne alongside crude oil’s decline to US$64. October CPO contracts fell RM64 to RM2,072.

TA Investment Management Bhd chief investment officer Choo Swee Kee said the local bourse was “looking a little tired” after gaining over 23% in the second quarter.

“Expectations ahead of Invest Malaysia (June 30-July 1) helped prop up the market after the long run and a lot of the expectations have now been realised… we’re now in a quiet period, the market is going through some correction… this could last one or two months as the market keeps a lookout on ‘what’s next’. Budget in September is still a distance away,” Choo said.

The average value of shares traded yesterday, at RM1.28, also suggests that the recent increase in retail participation may also be dissipating.

“It is difficult for day traders to make money when the market is on a downward trend in Malaysia because they can’t short shares. That could explain why volumes have fallen,” Choo said.

While recent economic data from China have been encouraging, “newsflow is mixed”, he said, pointing to dampers such as last week’s unemployment data in the US and Europe which renewed fears that a recovery would be slow in coming.

The US jobless rate was 9.5% in June, the highest since August 1983, while eurozone’s May figure was at a decade-high.

China, on the other hand, saw manufacturing activity up a third-straight month in June, coupled with news reports of real estate sales booming in cities like Shanghai. China’s GDP may have grown 7.5% in 2Q09, ahead of 6.1% in 1Q09, the central bank’s research bureau chief reportedly said in the July edition of the bank’s China Finance magazine. China is expected to release official figures next week.

Still, investors are “not holding their breath” to see if the positive vibes from China are enough to keep the bear rally going.

OSK Research, for instance, had in a note headlined Get Ready to Sell on July 1 told clients to “exercise greater caution and switch to more defensive strategy”, replacing higher-beta plays like MMC Corp, Wah Seong Corp and Lion Industries with Public Bank (buy, RM9.75 target price), Axiata Group (trading buy, RM2.70), and Top Glove (buy, RM7.40).

“The rally is increasingly looking weary… for July, we caution that the KLCI could well fall short of our initial ‘sell’ trigger of 1,150 points… we advise investors to get ready to sell on significant retracement,” OSK’s research head Chris Eng said in the note.

But Terence Wong, who heads CIMB Research in Kuala Lumpur, remains “overweight” on the local bourse.

While the market may indeed be heading for a correction after a strong rally from April, positive news flow from the construction sector, for instance, would help spur the market toward its year-end target of 1,220 points for the two-day-old FBM KLCI, he told The Edge Financial Daily.

Wong continues to favour high-beta “bombed-out sectors” such as construction, building materials, property, and oil & gas, recommending that investors look for the opportunity to pick up the stocks for gains over the medium term.

CIMB’s top picks include Gamuda (trading buy, RM2.61 target price); Genting (outperform, RM5.70); Genting Malaysia (outperform, RM2.63); IJM Corp (trading buy, RM5.55); Kencana (outperform, RM1.80); Lafarge Malayan Cement (outperform, RM6.05); MRCB (trading buy, RM1.22); RHB Capital (outperform, RM4.16) and SapuraCrest (outperform, RM1.43), according to its note on June 25.

For those interested in the technical perspective, chartists see immediate support for the FBM KLCI at 1,050 points while immediate resistance is seen at 1,070. The FBM KLCI futures for July rose four points to 1,061 yesterday, while August futures rose 4.5 points to 1,058 on thin trade.

Meanwhile, the FBM KLCI and other indices in the FTSE Bursa Malaysia series, saw a 52-minute disruption in real time data feed between 2.30pm and 3.22pm yesterday due to issues encountered by the data feed provider.

Underlying securities prices “remain unaffected and were correct”, Bursa Malaysia said in a statement yesterday, adding that index values for the FBM KLCI were “periodically announced” via its website during the disruption.

This article appeared in The Edge Financial Daily, July 8, 2009.