Malaysian bourse may stage a technical rebound ahead

We are of the view that our Malaysian bourse may stage a technical rebound ahead. A reversal of its downward momentum is probable assuming that positive vibes will emerge from the external front this week. If so, then we will look forward to the benchmark FBM KLCI making a comeback and test the 1,575- mark anytime soon.

After falling on four out of five days, the key market barometer posted a cumulative weekly loss of 16.2- point or 1.0% to settle at 1,548.81 on Friday. Meanwhile, the FBM 70 Index (+0.1%) and the FBM ACE Index (-1.2%) showed a mixed performance last week. Daily average volume stood at 1.0b shares valued at RM1.6b (versus 980.1m units worth RM1.8b the week before) as trading interest was held up by three new listings (namely Hibiscus Petroleum, Peterlabs Holdings and Prestariang) during the week.

What is going to happen these two days will probably set the market tone for the rest of the week, as our local market tracks the regional trend. In particular, all eyes will be on the U.S., which must work out its federal debt limit impasse by Tuesday. The bone of contention now is on how to narrow the budget deficit (either by cutting government spending or increasing taxes or both) in exchange for a legislative approval for a higher debt ceiling. Our hunch is that a compromise will eventually be reached by the lawmakers from both sides of the political
divide. As the matter remains very much within their control, these politicians will likely be sensible and realistic to make a breakthrough at the end of the day, considering the huge political backlash and economic repercussions should the unthinkable happen. Just imagine who will want to shoulder the blame for the brouhaha if their actions subsequently trigger an adverse chain of events, as a debt default will inevitable lead to a U.S. sovereign credit rating downgrade which in turn will wreak havoc in the global economy and financial markets.

The wide implications arising from the U.S. debt limit outcome also means that domestic news flows will be of less significance for now. In the pipeline this week will just be an economic report on external trade statistics for Jun due on Thursday and isolated corporate developments such as takeover offers to merge AIC Corporation, Jotech Holdings and AutoV Corporation (with their shares to be re-listed on Monday) and Pulai Springs (to be re-listed sometime this week).

On the chart, the FBM KLCI has slipped for three straight weeks already, losing a total of 45.9-point or 2.9% along the way to hover at a two-month low currently. From a momentum perspective, there is still no sign of a trend reversal yet. The first two support levels for the bellwether are presently seen at 1,530 and 1,495, respectively. Notwithstanding the short-term market pressures, we are hopeful that the benchmark index – after finding a stable footing – will stage an eventual recovery. A resumption of the uptrend will be more apparent when the FBM KLCI overcomes the resistance barriers of 1,550 (immediate) and 1,575 (next) going forward.

Report from HWangDBS