KUALA LUMPUR: The FBM KLCI rose to a two-year high on March 8, spurred by the potent combination of domestic and external dynamics, prompting investors to price in a better outlook for the economy. The ringgit strengthened further while commodity prices rose.
A buying frenzy had ensued from last Friday amid a high level of liquidity in the market, aided by the inflow of foreign funds after Bank Negara Malaysia (BNM) raised the key interest rate the day before.
The FTSE Bursa Malaysia KLCI (FBM KLCI) gained 25.91 points or 2% to a two-year intra-day high of 1,325.69 at 2.57pm. At the close, the benchmark index was up 24.44 points or 1.88% to 1,324.22, boosted mainly by banking stocks.
Over the past two trading days, the index had advanced 3.1% or 40.13 points, while market capitalisation soared RM25.85 billion to RM1,048.23 billion.
“The FBM KLCI may reach the 1,350-point level,” TA Investment Management Bhd chief investment officer Choo Swee Kee told The Edge Financial Daily over the phone on March 8. The index rose to its highest at 1,524.69 on Jan 14, 2008.
Across the exchange, 1.16 billion shares valued at RM2.26 billion changed hands, leading to 538 advancers versus 194 decliners.
Among top gainers, PUBLIC BANK BHD [ ] rose 62 sen or 5.48% to RM11.94 while PPB GROUP BHD [ ] was up 50 sen to RM16.60. The biggest decliner, ASIA POLY HOLDINGS BHD [ ], fell 22 sen to 26 sen while the most actively traded stock was AE MULTI HOLDINGS BHD [ ] which gained seven sen to 81 sen with almost 40 million shares done.
RHB Research Institute head of research Lim Chee Sing said positive market sentiments due to a better outlook for the Malaysian economy had spurred the FBM KLCI following a consolidation and correction in the local bourse.
“The Malaysian stock market was also helped by gains across US and regional stock markets,” said Lim, who sees the FBM KLCI hitting the 1,400-point level by year-end.
The ringgit was transacted at its firmest level in more than a month, at 3.3430 against the US dollar at about 4.30pm on March 8.
The central bank had last Thursday raised the overnight policy rate (OPR) by 25 basis points (bps) to 2.25% after keeping the benchmark interest rate at 2% since April 2009. One bp is one hundredth of a percentage point or 0.01%.
Some economits have predicted that BNM may initiate a collective 100bps hike in the OPR this year.
Anticipation that the ringgit will strengthen will spur overseas investors to acquire local assets such as stocks and bonds, hence the appreciation of the local currency due to demand.
Ahead of the latest monetary policy announcement last Thursday, the ringgit was trading at 3.364 versus the US dollar.
The economy rebounded from a recession in the fourth quarter (4Q) of 2009, with gross domestic product (GDP) expanding by an annual rate of 4.5% following three consecutive quarters of contraction.
The 4Q GDP numbers translate into a full-year GDP contraction of 1.7% in 2009. In quarterly terms, 4Q numbers expanded 2.2% from the preceding third quarter.
Across Asian stock markets on March 8, notable performers included Japan’s Nikkei 225 which closed 2.09% higher at 10,585.92 and Hong Kong’s Hang Seng Index which rose 1.97% to 21,196.87. Australia’s S&P/ASX 200 was up 0.85% to 4,807.9.
US indices registered impressive gains last Friday. The Dow Jones Industrial Average surged 1.16% to 10,566.2, Nasdaq gained 1.48% to 2,326.35 while the S&P 500 ended 1.4% higher at 1,138.7.
Technical analyst: Overbought with bearish divergence
From a technical point of view, Maybank Investment Bank Bhd’s head of retail research Lee Cheng Hooi said the FBM KLCI could reach “higher highs” against the backdrop of a good set of economic numbers from the US, and improving conditions in European markets which were marred by the debt crisis in Greece.
“However, we caution investors to be vigilant, as markets are overbought with obvious bearish divergence signals — signalling a short-term trading buy stance only on key liquid and blue-chip stocks.
“There will be less interest in mid-cap and lower-liner stocks,” Lee wrote in a note to clients. He sees the firm support areas for the FBM KLCI at the 1,255 to 1,299-point level, while the key resistance areas of 1,308 and 1,338 may cap any rebound activity.
OSK Research Sdn Bhd analyst Shin Kao Jack said the FBM KLCI’s near-term technical outlook remained firmly bullish, prompting the research house to revert to its short-term bullish view for the local bourse.
“A new uptrend developed after the FBM KLCI violated the short-term downtrend line last month. We are also shifting our view on the near-term market back to bullish, on seeing the key index write off two major bearish reversal possibilities,” Shin said in a note to clients.
Commodity prices rise
Meanwhile, crude palm oil (CPO) prices rose in tandem with crude oil.
ECM Libra Investment Bank Bhd analyst Bernard Ching said CPO prices should continue to rise this week in anticipation that the latest data from the Malaysian Palm Oil Board, due for release tomorrow, would show that stock levels fell in February.
“Our channel checks with PLANTATION [ ] companies indicated that while it (labour shortage) was a problem, it was not overly severe and would have minimal impact on yields. It naturally also depends on quality of labour as opposed to quantity,” Ching wrote in a note.
As at 4.30pm, CPO for May 2010 delivery was traded RM30 higher at RM2,700 a tonne while crude oil for the same month added 51 cents to US$82.43 a barrel at the New York Mercantile Exchange.
Crude oil prices advanced, possibly due to anticipation that demand for the hydrocarbon resource will improve as the global economy regains momentum, and the Organisation of the Petroleum Exporting Countries, which accounts for some 40% of world oil production, will stifle supply.
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