KLCI stages technical rebound as ringgit strengthens

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KUALA LUMPUR (Aug 13): The FBM KLCI gained 11.69 points or 0.7% as the ringgit strengthened after China said there was no basis for further currency devaluation. The assurance augured well for world markets.

Reuters reported that Asian shares gained on Thursday, taking heart from a late recovery on Wall Street and from reassurances from China's central bank that there was no basis for further yuan depreciation after it devalued the currency earlier this week.

Malaysia's KLCI settled at 1,621.62 after falling 26.78 points or 1.6% yesterday. Today, Japan’s Nikkei 225 rose 0.99% while Hong Kong’s Hang Seng gained 0.43%.

“Today’s (KLCI) rise is a technical rebound, as the index has lost over 100 points since the start of the month, due to the recent negative news flow. The index’s performance is also in line with the gains in regional markets,” Public Investment Bank Bhd research head Ching Weng Jin told theedgemarkets.com.

Across Bursa Malaysia, 1.86 billion shares worth RM2.21 billion were traded. Gainers beat decliners at 714 versus 217 while 252 counters were unchanged.

The top gainer was Dutch Lady Milk Industries Bhd while decliners were led by Kuala Lumpur Kepong Bhd.

In currency markets, ringgit strengthened to 4.0107 against the US dollar and compared to the euro, the ringgit changed hands at 4.4594.

BofA Merrill Lynch Global Research wrote in a note today that there was still risk the ringgit could weaken amid a confluence of global and domestic factors.

"Downside risks remain given looming Fed rate hikes, China’s RMB devaluation and the political crisis over 1MDB.

"Malaysia’s vulnerability is also heightened by high leverage (household, quasi-public and external) and a fragile fiscal position (heavy oil dependence, off balance sheet liabilities)," BofA Merrill Lynch said.

BofA Merrill Lynch has issued its note in response to the announcement of Malaysia's second quarter (2Q15) economic growth numbers today.

The Statistics Department said the country’s economy grew 4.9% year-on-year in 2Q15, lower than the 5.6% recorded in 1Q15.

While BofA Merrill Lynch maintained its 2015 Malaysian economic growth forecast of 4.6%, the research firm however cut its 2016 growth forecast to 4.5% from 5.2%.

"We see economic activity slowing further in the quarters ahead and expect some weakness in domestic demand to persist into 2016," BofA Merrill Lynch said.