Asia extends gains

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KUALA LUMPUR: Asian stock markets, including Bursa Malaysia, rallied to a six-month high yesterday, buoyed by hopes that the economic downturn is nearing its end.

Hong Kong’s Hang Seng Index surged 452.35 points or 3.11% while the Kuala Lumpur Composite Index (KLCI) rose to its highest since Jan 12, 2009.

Hopes of an economic recovery also spilled over to US and European markets on opening. But, perhaps reflective of the  tenuous nature of any “recovery”,  most major European indices closed lower by over 1% after US markets slipped into the red due to renewed concerns over the state of banks in the US.

Over in Asia, the upbeat sentiment was driven by the robust response received by HSBC Holdings plc for its massive US$18.9 billion (RM67.47 billion) rights issue and the Japanese government’s new economic stimulus package worth at least US$100 billion, the details of which will be unveiled on Friday.

Investor sentiment was also boosted by US Federal Reserve chairman Ben Bernanke’s comments that policies to unfreeze credit markets were working.

Moreover, the Japanese yen dropped sharply yesterday, depreciating to a five-month low, suggesting investors were moving away from safe havens into higher-risk assets. Higher-yielding currencies such as the New Zealand and Australian dollars rose, reflecting the investment trend.

On the local front, sentiment was lifted by Prime Minister Datuk Seri Najib Razak’s positive statements on how he plans to lead the country, with reports suggesting that his policies will be investor friendly.

Nevertheless, he faces an early test of his political power given the three by-elections today.

In Asia, the Hang Seng Index led the charge, jumping 3.11% to 14,998.04 points, Singapore’s Straits Times Index rose 1.49 % to 1,847.98 and Japan’s Nikkei 225 gained 1.24% to 8,857.93. Other Asian markets were also higher, with South Korea’s Kospi up 1.1% to 1,297.85 and Taiwan’s Taiex 0.48% to 5,556.22.

The KLCI rose 16.76 points or 1.85% to 923.77. Advancers thumped decliners 437 to 147. Turnover increased sharply to 876.48 million shares valued at RM1.27 billion.

The KLCI’s upward trend over the past few weeks has been accompanied by rising volume, with total trade done amounting to 1.96 billion units between March 30 and April 6 (or an average of 326 million units per day) versus 1.56 billion units in the previous six-day period (260 million units per day).

Yesterday, the volume reached 438 million units. Leading the gainers, IOI Corporation Bhd rose 14 sen to RM4.24, Genting Bhd 22 sen to RM4.28, Axiata Group Bhd 20 sen to RM2.69 and Malayan Banking Bhd eight sen to RM4.16.

Plantation stocks such as Sime Darby Bhd also advanced as palm oil futures gained on hopes that the worst of the economic downturn may be over. Sime added five sen to RM5.90. June-delivery crude palm oil futures hit an intra-day high of RM2,196 per tonne, but closed lower at RM2,145 a tonne yesterday, versus RM2,165 last Friday.

“The near-term technical outlook for the palm oil futures market is relatively straightforward,” Shin Kao Jack, an analyst at OSK Research, said in a note yesterday. “The futures market is expected to continue trending higher until the short-term uptrend line is violated.”

Crude oil price increased to US$52.97 per barrel as of 7.10pm yesterday from US$52.51 per barrel last Friday.

Maybank Investment Bank head of retail research Lee Cheng Hooi expected the buying momentum to continue, underpinned by external and internal factors.

He said the political leadership was intact as reflected by the smooth transition of power to Datuk Seri Najib Razak. “The momentum is more sustainable now and the rebound could last about a month or two,” he said.

Lee said the ringgit had also strengthened over the past month and there could be some foreign funds picking up stocks. The funds would benefit from the strengthening of the ringgit and increase in share prices. The ringgit strengthened from about 3.7175 to the US dollar to 3.5591 as of 5.30pm yesterday.

Meanwhile, Kenanga Research head Yeonzon Yeow said the recent market rally was largely in line with the overall global equity market recovery, with Malaysia traditionally lagging its peers.

“In addition, hope that the new administration would quickly put to work its pump-priming plans is also a key catalyst for the revival on Bursa Malaysia,” he said.

Technically, Yeow believed there would be a real recovery only if the KLCI held above 880 points and stayed consistently above 920 points with high volume.

Nevertheless, he said investors were still cautious and the recent rally had provided an opportunity for them to take some profit off the table as the real economy had not shown convincing signs of recovery.

“The uncertainties surrounding the global economy are still high as unemployment continues to rise while businesses continue to fold,” Yeow said. He also noted that details of the various countries’ pump-priming efforts have yet to be worked out and the timing of the implementation was still uncertain.

On the local front, he said banks were bracing for higher non-performing loans (NPLs), especially from small and medium enterprises (SMEs) and consumer segments that could affect the multiplier effect of the stimulus packages.

Counters from different industries occupied the top 20 performers’ list over the last six trading days, with Zelan Bhd, Proton Holdings Bhd and Sunrise Bhd as the top three gainers (see table).

Zelan was the top performer, rising 24.14% to 72 sen yesterday from 54 sen the previous Monday as volume rose 52.46% to 79.6 million shares over the past six trading days from 52.21 million units traded between March 20 and March 27.

Proton’s share price gained 22.58% to RM1.90 yesterday from RM1.53 the previous Monday. Volume rose to 18.41 million shares over the past six days from 5.06 million previously.

On the contrary, Sunrise’s volume dropped even when the KLCI’s volume surged. Volume traded fell to 6.26 million shares during the past six trading days from 12.8 million shares in the preceding six-day period.

This article appeared in The Edge Financial Daily, April 7, 2009.