Asian policymakers are trying to restrict the likely influx of hot money

While the consolidation process could carry on, the underlying resilience shown by our Malaysian bourse thus far suggests fairly limited downside ahead. Against a backdrop of selling pressures, the benchmark FBM KLCI fell to a low of 1,487.21 before rebounding to settle at 1,506.05 on Friday. This is 6.2-point or 0.4% above the preceding Friday’s close of 1,499.81. The FBM 70 Index (+0.7%) was up too but the FBM ACE Index (-1.5%) lost ground through the week. Nevertheless, there was no obvious sign of panic selling as daily average volume lightened to 1.1b
shares (from 1.6b units) valued at RM1.5b (RM2.2b previously).

It was more or less the same story across Asia, with the key weekly losers being China shares listed in Hong Kong (-3.6%), India (-2.8%), Hong Kong (-2.5%), Singapore (-1.7%) and Thailand (-1.0%). One possible reason cited is the withdrawal of funds in response to preliminary fears that some forms of capital controls might be imposed by central bankers. Essentially, Asian policymakers are trying to restrict the likely influx of hot money – which otherwise could inflate their currencies (thus eroding export competitiveness), commodity prices (stoking inflationary
pressures as a consequence) and asset bubbles – as the U.S. Federal Reserve prepares to inject more liquidity into the financial system. Even so, despite all the rhetoric of capital control measures that may possibly be implemented (which ironically had caused most Asian currencies to weaken of late), we presume no drastic policy action will be taken unilaterally that will result in a reversal of the global economic recovery momentum started less than two years ago.

Still on the economy, there will be an update on the home front when the 3Q10 Gross Domestic Product (GDP) report is out on Monday (22 Nov). On the corporate scene, the excitement will be on: (a) the deal involving QSR, KFC (majority-owned by QSR) and Kulim (the parent company of QSR) after QSR said it has received a proposal to acquire its entire business and undertakings for an indicative price of RM5.60 per QSR share; and (b) the debut listing of Petronas Chemicals Group – an integrated petrochemical manufacturer with a market capitalization of RM41.6b based on an institutional offer price of RM5.20 – on Friday (26 Nov).

In addition, more earnings announcements are to be made this week, such as by CIMB (Mon), IJM (Tue), MISC, PLUS, Axiata (Wed), MAS, AirAsia, Sime Darby (Thu) and TM (Fri). Technically speaking, our local stock market is showing early signs of a recovery. Its bellwether FBM KLCI – after sliding from a peak of 1,531.99 to as low as 1,487.21 (representing a 2.9% pullback) before stabilizing – could be on its gradual way towards the first resistance hurdle of 1,525. A clean breakout will likely propel the benchmark index to the next resistance target of 1,550, hence extending the 20-month market rally.

Meanwhile, the 39-day moving average (MA) line continues to signal little immediate downside risk in the FBM KLCI. The key market barometer touched briefly the MA line last week before bouncing up subsequently. If history repeats itself – the FBM KLCI had previously resumed its uptrend after bottoming near the 39-day MA line in eight instances since mid-Mar last year (see chart overleaf) – then this could mark the beginning of the next leg of run-up.

Conversely, should profit-taking activity still dominate to hold back the upward momentum for the time being, we have set the first two support lines at 1,495 and 1,465, respectively.

Report from
HWangDBS