KLCI rebound after a brutal sell off

Most equity markets in Asia ended Monday smartly higher. Sentiment was more positive, as investors bargain hunted for bashed down stocks. This comes on the heels of one of the worst ever week as panicked investors dumped shares across the board for safe havens like government securities and cash.

Having said that, confidence remains on jittery ground, and it would not take much to trigger more selling. But on Monday, markets took comfort that governments are pulling out all stops to stem the global financial crisis.

For instance, the Australian and New Zealand governments announced guarantees for all deposits with financial institutions over the weekend. Leaders from the eurozone have pledged to guarantee new bank lending until end-2009, while the US government is widely expected to take up direct stakes in banks - all in efforts to thaw the frozen credit market. The US is also discussing a second economic stimulus package to help boost flagging growth.

It remains unknown how effective all these unprecedented measures will turn out to be. Meanwhile, turmoil in the past few months has taken its toll on underlying economies. Most market observers agree that key developed countries are already in a recession. The question now is when can we expect a sustainable recovery. Unfortunately, an answer is unlikely to be forthcoming in the near future.

As such, investors will continue to tread very cautiously and avoid taking big bets on the market. We expect some will gravitate towards lower-risk stocks, while many will remain sidelined.

Although the KL Composite Index ended the day nearly 17 points higher at 950.8 points, market breadth was in the red throughout. This suggests that buying is very selective and focused on big cap blue chips. Losing stocks outnumbered gaining ones by roughly five to four at the close. Market volume improved somewhat with over 597 million shares traded.