KLCI to trend higher on fresh bullishness

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KUALA LUMPUR (Nov 1): The FBM KLCI is expected to kick start November on a higher note in line with the fresh wave of bulllishness at the global equity markets.

On Friday, global equity markets surged more than 1 percent and the yen fell to a nearly seven-year low against the dollar on Friday after the Bank of Japan surprised financial markets by ramping up its massive economic stimulus program, according to Reuters.

The Dow Jones industrial average closed up 195.1 points, or 1.13 percent, to 17,390.52. The S&P 500 gained  23.4 points, or 1.17 percent, to 2,018.05 and the Nasdaq Composite rose 64.60 points, or 1.41 percent, to 4,630.74, it said.

Affin Hwang IB vice president and head of retail research Datuk Dr Nazri Khan said global equity markets including Bursa Malaysia closed October on a firmer note.

“Going forward, we expect local stocks to continue the solid rebound following USA economic optimism, bullish global economic (USA 3Q GDP growth/labour market/consumer confidence figures), China state enterprise reforms and Japanese liquidity pump priming which offset worries that the Federal Reserve could raise interest rate sooner than expected,” he said.  

Nazri said that end of year rotation and window dressing were also likely to push equities higher as mutual funds start selling losers and buying winners ahead of the traditionally bullish November-December-January festive seasons.

He said positive tones could be seen in Asian region following China economic reforms despite talks of tough tightening to curb the flow of credit and burst the nation’s property bubble during the weekend’s meeting of China’s Communist party hierarchy.

Meanwhile, stronger Japanese Nikkei supported by weaker yen and an optimistic tone from the Bank of Japan as well as talk that a major pension fund is looking to boost exposure into riskier assets should inspire a re-pricing of risk in the regional market and was seen as near term positive for Asian equity markets.

Nazri, who is also president of the Malaysian Association of Technical Analysts said Bursa Malaysia had rebounded 4.5% from 17th October low after correcting 6.8% since July all time high of 1896.23.

On the domestic front, Nazri said construction stocks were the strongest sector driven by Budget 2015, improved prospects for fiscal consolidation, public finance reform as well as continued order book.

On the technical front, Nazri said the latest gain for the FBM KLCI took it back above its 50-day moving average for the first time in nearly a month, and left it just 2% below a record closing high reached in the middle of September.

He cautioned that the market however could take on a defensive posture if the FBM KLCI reversed down and violate 1830 support level.

He said while there was a potential for a short term dip in the market to rebalance overbought technical conditions, the prevailing trend points up with immediate target at 1,850 and 1,880 level.

Nazri added that one way to look for signs of market stress was to look at breadth figures which so far remain positive suggesting more stocks participating in the rally.

“Hence, we believe any weakness is just temporary and should not be construed as the start of a new crisis downleg,” he said.  

“Finally, for the weekly strategy, we are inclined towards buying Chinese New Year linked small cap stocks such as MyEG, Timecom, GHLSys, Hapseng, KSL, SMRT, Tekseng, IFCA, Carepls, Bornoil, Nihsin, Perstim, SHL, Luxchem. 

“As for blue chips, traders should accumulate holiday-season-beneficiaries-stocks which do well near the festive year end such as Tenaga, Telekom, Digi, Axiata, Aeon, Gamuda, IJM, Bursa and KLCC,” he said.