KLCI to cautiously drift marginally higher

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KUALA LUMPUR (April 18): The FBM KLCI is expected to drift marginally higher next week ahead of Invest Malaysia 2015 on April 23-24, with gains seen limited on the back of the weaker close at most global markets.

Global equity markets fell on Friday on reports about a crackdown on margin lending in China, while the dollar retreated on views that stronger U.S. consumer prices were not enough to offset recent weak data that could slow a Federal Reserve interest rate hike, according to Reuters.

China's securities regulator warned investors to be cautious as Chinese shares hit seven-year highs after seven weeks of gains. Retail investors are borrowing record amounts of money to buy stocks, pushing trading volumes to new highs, it said.

AffinHwang Capital IB vice president and head of retail research Datuk Dr Nazri Khan said that Bursa Malaysia should continue to drift higher, supported by a positive regional sentiment on upcoming China stimulus, expectation on delayed Fed rate hike, European liquidity and stronger ringgit.

He said there was an important case for a continuous bullish turnaround in the sentiment given the stronger Ringgit and a weak US dollar trend.

Nazri said the China-Europe combo stimulus, including the impact of loose Bank Negara policy, rising oil prices, high yields dollar retreat appears to rebalance the global dynamic of foreign inflow which is positive for Bursa Malaysia.

On the domestic front, Nazri said he was confident that Bursa sentiment will get a positive spillover from the upcoming 11th Malaysia Economic Plan, to be tabled in Parliament on May 21, which will address Malaysia economic growth from a multi-dimensional perspective including corporate profit, business opportunities, worker income, access to education, healthcare, quality of work life and living conditions.

“We also expect the government decision to cut May crude palm oil export taxes to zero (against a 4.5% rate imposed in April) will result in a more attractive tax structure vis-a-vis Indonesia.

“Hence, we think Malaysian CPO exports should see better demand in the coming months and boost the near-term sentiment of crude palm oil and plantation stocks at large,” he said.

Nazri, who is also the president of the Malaysian Association of Technical Analysts, said that on the technical front, the FBM KLCI had once again eclipsed the 1,850 psychological level for the first time in nearly six month, which had been a monthly hurdle difficult to sustain. 

Nazri said the FBM KLCI Index had maintained its uptrend and gained a respectable 90 points or 5.1% year-to-date.

“We expect Bursa to accelerate the momentum and test the all time high of 1896.23 recorded on July 8, 2014.

“All of the major sectoral indices are within striking distance of new multi year highs with Trading Service sector (with Maxis Bhd, Telekom Malaysia Bhd, MISC Bhd, Westports Holdings Bhd, IHH Healthcare Bhd, KPJ Healthcare Bhd) being the leader hitting a record all time 38 year high,” he said.

Nazri said the market close remained above the 20-day, 50-day and 200-day moving average suggesting firm bullish power across all time frames.

He said the average daily trading volume decreased slightly but remain respectable at 2.5 billion shares worth RM2.3 billion.

“A small white Marubozu candlestick has appeared on the weekly technical chart, indicating that bulls will be dominant again.

Overall, the FBM KLCI should extend its bullish mode, mirroring China led Asian bullish market on the upcoming mega stimulus,” he said.

Nazri said that strategy wise, aggressive investors should continue to long index futures while conservative investors should accumulate AffinHwang’s Top Ten trading service stocks namely IHH,  MISC,  Petronas Dagangan Bhd, TM, Westports, Pharmaniaga Holdings Bhd, GD Express Carrier Bhd, Pos Malaysia Bhd and Integrax Bhd.