IN my previous article, I was expecting the market to be directionless after a volatile week. The market was indeed directionless but in a volatile manner. The market, including global markets, reacted negatively after most Greeks voted a “no” to an international bailout offer. The market viewed this as a bad thing for the euro and this sent the euro falling.
Fitch’s rating only provided some comfort for the ringgit and equity markets last week, but after the Greek vote, the ringgit also took a beating and was at its lowest in 16 years against the greenback. The equity market benchmark index, the FBM KLCI, pulled back from a high of 1,738 points to close at 1,712.3 points yesterday, which was only 0.3% higher from last week.
Trading volume was firm in the past one week as compared to the previous corresponding week. The average trading volume last week was 1.7 billion shares. The average trading value in the past one week was RM1.8 billion, RM1 billion lower from the previous week. Foreign institutions continued their selling spree in the local market as their confidence was weakened by the weak ringgit and the heightening 1Malaysia Development Bhd (1MDB) saga. From Monday to Friday last week, net selling from foreign institutions was RM314.9 million, while local institutions’ net buying was RM470.8 million. Local retail shared the same sentiment as the foreign institutions, and their net selling was RM155.9 million.
In the KLCI, decliners outpaced gainers 17 to 13. Top gainers in the KLCI were IOI Corp Bhd (up 6.3% from last week), Kuala Lumpur Kepong Bhd (5.4%) and British American Tobacco (M) Bhd (4.8%). Top three decliners in the index were AMMB Holdings Bhd (5.6%), SapuraKencana Petroleum Bhd (4.6%) and Tenaga Nasional Bhd (3.4%).
Most markets in Asia fell from last week. China’s Shanghai Stock Exchange Composite Index plunged 12.9% in a week to 3,728.19 points. The index has declined 27% in three weeks. Hong Kong’s Hang Seng Index fell 4.9% in a week to 24,975.31 points. However, Japan and Singapore were able to find support and increased slightly higher. Japan’s Nikkei 225 increased 0.7% in a week 20,376.59 points, while Singapore’s Straits Times Index rose 0.7% to 3,340.93 points.
Markets rebounded in the United States on a stronger US dollar, but Europe continued to decline. The US Dow Jones Industrial Average rose 0.5% in a week to 17,683.58 points. Germany’s DAX Index fell 1.7% in a week to 10,890.63 points, and London’s FTSE 100 Index declined 1.3% to 6,534.48 points.
The US Dollar Index rose marginally from 95 points to 96.5 points. This caused pressure in gold prices. Commodity Exchange gold declined 0.9% in a week to US$1,169.30 an ounce. Crude oil price fell to its lowest in nearly three months. WTI crude oil fell 9.6% in a week to US$52.68 (RM200.71) per barrel. Crude palm oil in Bursa Malaysia fell marginally lower on falling crude oil prices, but the weak ringgit helped to support prices. The price declined 0.9% in a week to RM2,210 per tonne. The market managed not to make a new low like it did in the previous weeks, and this shows that the market has some support. However, the trend remained bearish after the KLCI failed to break above the short-term 30-day moving average despite testing it last week. There is no change to the Ichimoku indicator as the KLCI continued to stay below the “cloud”, and this indicates that the market is still not out of the storm.
However, momentum indicators, like the RSI, MACD and Momentum Oscillator, show a bullish divergence that indicates that the bearish trend is weak as selling pressure has eased. The index is trading at the middle band of a contracting Bollinger Bands indicator, and this indicates that the index is directionless in the short term.
From the KLCI chart, the KLCI is currently in a bearish trend correction. The weak ringgit and the heat over the 1MDB saga may cause the market to be cautious. Selling may continue and if the index breaks below 1,700 points, then we expect the index to fall to the next crucial support level at 1,670 points. Until that happens, the market is expected to continue staying directionless with resistance at 1,730 points, which is where the short-term 30-day moving average currently at. The weaker ringgit continues to provide trading opportunities for export-oriented companies.
Benny Lee is chief market strategist for Jupiter Securities Sdn Bhd. Jupiter Securities is a participating broker in Bursa Malaysia. He can be contacted at [email protected]. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgement or seek professional advice for your investment decisions.
This article first appeared in The Edge Financial Daily, on July 8, 2015.