KUALA LUMPUR (Nov 22): The FBM KLCI is expected to track lower next week and retest the 1,800 level next week but any short term weakness is viewed as a buying opportunity.
At the global markets last Friday, stocks and oil prices rallied, fuelled by hopes for global growth after China rolled out a surprise interest rate cut and the European Central Bank indicated it would step up asset purchases to boost the euro zone economy, according to Reuters.
Wall Street's Dow Jones industrial average and the S&P 500 ended at new record highs, with each rising more than 1 percent on the week in the fifth straight week of gains for U.S. equities.
AffinHwang IB vice president and head of retail research Datuk Dr Nazri Khan said that the local equity markets should take a lower track next week and retest 1800 level, supported by a slow boost in risk-taking sentiment, declining ringgit, falling commodities and ideas that funds temporarily rotating out from defensive market.
He said despite inching down slowly, the FBM KCLI should maintain its bullishness over the medium term as equity bulls remained largely unfazed by rising rates in the USA and investors’ attention turned to the Japan easing monetary policy in the traditionally bullish year-end-quarter.
“We therefore believe any short term weakness ahead as buying opportunity as the FBM KLCI dip lower towards 1800 before putting a bottom and rebound.
“USA stocks remain the best catalyst ad it edged up to record levels on solid domestic economic releases offsetting concerns sparked by weak data from the Eurozone and China,” he said.
Nazri said local sentiments should eventually be firmer as investors hoped for more monetary largesse from the Eurozone and welcomed confirmation of a snap election in Japan, setting the scene for further stimulus measures in Japan, the world’s third-biggest economy.
He said there were positive data as well from Europe with the Euro and Pound closing at one week high after the ZEW survey of German economic sentiment rose more than expected and UK inflation data came in a touch higher than forecast.
Nazri said the renewed Japanese optimism reflected hopes that Prime Minister Shinzo Abe seek a fresh mandate (delay a planned tax rise and undertake further reforms and fiscal action) in order to boost growth after Japan unexpectedly slipped into a technical recession.
“This should complement the positive Asian regional catalyst following the stock connect scheme between the Hong Kong and Shanghai bourses.
“Meanwhile, we expect weaker global manufacturing activity in China to exert moderate downward pressure on global commodities in the next few weeks,” he said.
Nazri, who is also president of the Malaysian Association of Technical Analysts, said that on the technical front, most FBM KLCI daily oscillators were pointing sideways suggesting a declining bearish momentum and limited downside space.
“The local benchmark however closed below the 20-day, 50-day and 200-day moving average suggesting weak downside across all time frames.
“The FBM KLCI has risen 92 points or 5.2% (high-low range of 1766 to 1858 in the last two weeks of October) on a fairly good volume which mean we now expect the FBM KLCI to remain buoyant and maintain support above the 1800 level,” he said.
Nazri said the technical strength shown by Bursa was still healthy which signalled a continuation of the bigger uptrend after a decent correction.
“We always believe the consolidation spotted since August 2014 is a sign the local market is “catching its breath” after its strong rally from January to July which registered a total of 127 points or 7.2%.
“Strategy wise, aggressive investors should long index futures on dip while conservative investors should accumulate Budget-2015-linked-GLC and UMNO-linked-stocks which includes the likes of Tenaga Nasional Bhd, Axiata Group Bhd, Telekom Malaysia Bhd, Gamuda Bhd, Westports Holdings Bhd, Masterskill Education Group Bhd, Mitrajaya Holdings Bhd, Time Dotcom Bhd, Cahya Mata Sarawak Bhd, Econpile Engineering Bhd, My E.G. Services Bhd, Hap Seng Consolidated Bhd, Jobstreet Holdings Bhd, GD Express Carier Bhd, Carimin Petroleum Bhd, K-One Technology Bhd and Solid Automotive Bhd,” he said.