Friday 29 Mar 2024
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KUALA LUMPUR (Jan 17): The recent drop in the local stock market’s benchmark index, FBM KLCI, suggests investors could be taking profits — a trend usually seen in the weeks closer to Chinese New Year, said JF Apex Research in a note released today.

According to analyst Lee Cherng Wee of the research house, FBM KLCI tends to peak in December or January, before suffering from sell-downs that normally start a month before Chinese New Year (CNY).

“Looking at the KLCI's performance in the past 17 years, the market tends to correct downwards ahead of CNY, having done so in the 9 consecutive years,” said Lee, adding that in the past 17 years, the KLCI has been positive with an average gain of 4.3% from the first trading day in January, until its peak before CNY, except in the years 2012, 2014 and 2016.

In 2000, the pre-CNY rally saw the KLCI surge 17.9%, while in 2007, the index rose 15.1%.

However, the recent movement of the FBM KLCI broke the downtrend channel and the 200-day moving average.

“The sell-down before CNY has occurred in 10 out of the 17 years since 2000, with an average decline of 2.1%,” he said.

The FBM KLCI closed at 1,658.84 points yesterday, a 1% drop since peaking at 1,677.76 last Thursday.

Yesterday’s pullback, which has failed to breach the 1,680-point resistance level, could suggest the beginning of profit taking, as investors enter the year of the Fire Rooster, he noted.

“Yesterday’s plunge tested the 100- and 200-day moving averages and further downside can be seen, if the support at 1,650 points fails to hold,” he said.

At 11am today, the benchmark index had gained by 0.27% or 4.44 points, trading at 1,663.49 points.

Previously, JF Apex Research had in a Jan 5 note, forecast the FBM KLCI to end 2017 at 1,740 points, which was pegged at a price-to-earnings ratio of 17.3x.

The forecast was 35 points lower from its previous target of 1,775 points, as it downgrades corporate earnings growth.

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