Despite facing greater selling pressures at the moment

Despite facing greater selling pressures at the moment, we see fairly limited downside risk for the benchmark FBM KLCI. On the other hand, following the break in momentum caused by shaky overseas events, any upward movements will probably be gradual.

The key FBM KLCI touched a new record high of 1,597.08 on Monday but lost back more thereafter to settle at 1,577.25 last Friday. This represents a weekly drop of 17.5-point or 1.1%. Losing further ground were the FBM 70 Index and the FBM ACE Index, down 1.1% and 1.7% respectively through the week. There was no panic selling though as daily average volume slowed to 759.8m shares valued at RM1.5b when compared with the 931.3m units worth RM1.7b traded in the preceding week.

From Europe to America, the mounting debt dilemma has made investors increasingly nervous. Their jitters then triggered a sell-off in regional equities last week, hitting China shares listed in Hong Kong (-3.8%), Hong Kong (-3.7%) and Singapore (-2.1%) the hardest. Wall Street was not spared too, as U.S. stock indices posted a weekly loss of 1.4% to 2.4%.

With the external backdrop seems vulnerable this moment, it remains to be seen whether our Malaysian bourse could draw strength from domestic catalysts in the week ahead. One potential source of excitement may come from financial result announcements from companies like Bursa Malaysia (on Tuesday), DiGi and Public Bank (likely to be on Wednesday), as well as British American Tobacco and Tenaga (both on Thursday). In addition, the debut listing of Bumi Armada (on Thursday) will surely attract a lot of interest too. Meanwhile, the Consumer Price Index (CPI) report for Jun – to be out on Wednesday – will also be closely followed as a inflation measure following the hike in electricity tariffs (of 7.1% on average) and gas prices (by 20%) effective from 1 Jun.

On the chart, a technical rebound for the FBM KLCI could be approaching anytime soon. Essentially, we expect the bellwether to show resilience as its downside will likely be buffered by: (a) a 39-day moving average line (a historically reliable indicator) which is now hovering at 1,564; and (b) a short-term positive sloping trend line where the index is resting on presently. Our first two support levels are pegged at 1,575 and 1,550, respectively.

Nonetheless, notwithstanding the limited downside risk, it will probably take time for the FBM KLCI to plot higher highs. As our market consolidation drags on, 1,605 will be the immediate barrier to break for the uptrend to resume going forward.

Weekly report from HwangDBS