KUALA LUMPUR (Jan 17): The FBM KLCI is expected to tread cautiously next week on the back of the weaker global growth outlook from the World Bank, currency softness and extended dip in commodities’ prices.
Wall Street stocks rebounded on Friday on signs the U.S. economy was on track for solid growth with consumer sentiment hitting an 11-year high, while the euro slid further against the dollar a day after Switzerland ditched its currency cap, according to Reuters.
Crude prices rallied on the U.S. sentiment report and after the International Energy Agency said lower prices had begun to curb production in some areas, including North America. The IEA said prices might fall further, but "signs are mounting that the tide will turn”, it said.
U.S. gasoline prices fell again in December, leading consumer prices to post their biggest decline in six years, while a gauge of underlying inflation was flat. The data could make the Federal Reserve cautious about raising interest rates, said Reuters.
AffinHwang Capital IB vice president and head of retail research Datuk Dr Nazri Khan said he expects the FBM KLCI to drive lower dragged by a weaker global growth outlook from the World Bank, emerging currencies softness, continuous plunge in commodities and Swiss National Bank surprise move to abandon fixed ceiling against Euro.
He said global equity markets rebounded, with U.S. stocks capping five straight sessions of losses.
“European shares rose on growing expectations of economic stimulus from the European Central Bank.
“Concerns over the prospects for global growth helped drive equity sharply lower and bolstered demand for safe havens and core government bonds as participants pushed back expectations for the rise of US interest rates,” he said.
Nazri, who is also president of the Malaysian Association of Technical Analysts, said this was confirmed by falling US government bond prices which fell sharply last two week.
He said the yield on the 10-year Treasury hit 1.78 per cent, the lowest since May 2013 while the 30-year yield touched a record low beneath 2.4 per cent.
Nazri said that on the technical front, the intermediate trend for the FBM KLCI supports the bear camp, with momentum showing an acceleration to the downside.
He said the close below the 20-day, 50-day and 200-day moving average was an indication the trend has turned down on all time frames.
“Momentum studies are showing speedy downside could accelerate if more support levels are broken.
“The rising distribution volume daily closing price reversal down puts the market on the defensive. The market tilt is now negative with the the next downside target pegged at 1700 and 1680 while the next area of resistance is spotted around 1730 and 1750,” he said.
Meanwhile, Nazri said the ringgit continued to drift downward (-1.2% to 3.5730) which seemed a more measured response towards external situation ie. dollar strength and commodities weakness rather than due to deterioration of Malaysian fundamentals.
Strategy-wise, Nazri said his Top Five weekly picks amidst the downside correction were as follows : (1) MISC Bhd for its resilient business model and its benefit from the current low crude oil price environment and rising eastbound Transatlantic trade (2) Tenaga Nasional Bhd under the utilities banner on tariff hike/energy reform (3) Public Bank Bhd on its strong franchise and loan and deposit growth track rcods which are always above industry average (4) Kossan Rubber Industries Bhd which is expected to capitalize on strong demand in the rubber glove segment on falling ringgit and (5)IJM Corporation Bhd’s construction order book will be significantly be boosted by the West Coast Expressway (WCE) and Kuantan Port expansion projects (thereby also boosting demand for piles) while its FFB production will surge as more oil palm plantation areas in Indonesia matures.