More Of The Same, Veering Lower

The  FBM  KLCI  ended  marginally  lower after  enduring  a choppy trading session which  saw  the  index  heavyweights shifting  around  both  sides  of  the  trade. Major  indices  that  bucked  the  overall insipid  trend  include  Technology (+0.25%),  Mining  (+1.30%),  Industrial (+0.11%) and Finance indices (+0.04%).

Traded  volumes  waned  in  tandem  as  it fell by 22.4% to  the 2.3 bln mark. Market breadth  was  also  negative  as  losers outstripped  gainers  on  a  ratio  of  2-to-1 stocks.

The decliners on  the  FBM KLCI was led by  UMW  (-28.0  sen),  followed  by  the various  banking  heavyweights  such  as Public  Bank  (-12.0  sen),  Hong  Leong Bank (-10.0 sen) and RHB Capital (-12.0 sen).  Despite the  jump in  the  Malaysian palm  oil  futures  to  mark  its  biggest monthly  gain  in  five-and-a  half  years, some  plantation counters  saw  no shortterm  relieve  as  United  Plantation  and Batu  Kawan  fell  58.0  sen  and  8.0  sen respectively, while Far East slipped 25.0 sen.  Other,  significant  losers  include Press Metal (-12.0 sen),  KSL  (-10.0 sen) and  Coastal  (-8.0  sen).  Goh  Ban  Huat contracted  12.0  sen  after  the  proposed reverse  takeover  (RTO)  by  Dynac  Sdn Bhd was aborted.

However,  not  all  financial  heavyweights slipped  into  the  negative  territory  as CIMB (+14.0 sen) and HLFG (+20.0 sen) were amongst the  key  advancers  on the big  board.  Other  significant  heavyweight gainers include  TM  (+5.0 sen) and SIME (+3.0  sen).  Elsewhere,  major  advancers were  Tasek  Corp.  (+22.0  sen),  MPI (+12.0  sen),  Scientex  (+9.0  sen)  and SPB (+20.0 sen).

The  Nikkei  and  Hang  Seng  dropped 0.6%  and 1.3% respectively,  as the latter was  led  by  a  selloff  in  electronics  and technology  counters.  The  Shanghai index,  however,  closed  a  tad  higher, while  ASEAN  indices  ended  mixed again.

The  broad-based  decline  seen  in  the U.S. overnight was triggered by the first Ebola  case  detected  in  Dallas,  Texas. The  Nasdaq  fell  1.6%,  led  by  losses  in technology  stocks,  while  materials  and industrials sent the S&P 500 1.3% lower. The  Dow  ended  238.19  points  lower  at 16,804.71  pts.  Meanwhile,  the  final Markit  reading  of  U.S.  manufacturing improved  at  a  slower  pace  in September.

Investors in  Europe  was confronted  with a  weaker  German  and  U.K.  PMI  data reading, raising concerns over the nearterm economic outlook and the region’s recovery  efforts.  Consequently,  the FTSE  fell  as  shares  of  both supermarkets  -  Sainsbury  and  Tesco were  hammered.  Also,  the  DAX  and CAC fell 1.0% and 1.2%, respectively.

THE DAY AHEAD

Given  the  weaker  global  stockmarket performance  and  the  surprise  fuel  price hike yesterday, we expect the market to trend  lower  today.  Sentiments  have turned  weaker  among  domestic  stocks and  with  earnings  growth  under  threat from  the  higher  fuel  cost,  the  lackluster market  conditions  will  persist  over  the near  term.  This  may  again  place  the FBM  KLCI’s  1,840  support  level  under threat  again,  but  we  think  there  should be  some  near-term  lift  from  local institutions for the level to be preserved.

Interest on lower liners is  also starting to wane  amid  the  combination  of  fewer catalysts and investor wariness.    Hence, we continue to think that the buying will be  selective  and  upsides  will  also  be capped with retail investors steadfast on their quick profit taking strategies.  

MARCO BRIEF

The  price  of  RON95  petrol  and  diesel fuel  has  been  increased  by  20  sen effective  2nd  October  2014.  The  new price  of  RON95  petrol  will  be  RM2.30 per  litre,  while  diesel  will  cost  RM2.20 per litre. This  is in line  with the subsidy rationalisation  plan  by  the  Government to  ensure  that  the  country’s  finances remain strong.

Despite  the  increase,  the  Government said  it  still  needs  to  spend  more  than RM21.0  bln  on  fuel  subsidies  for RON95,  diesel  and  LPG  in  2014.  The current  unsubsidised  market  price  for RON95 is RM2.58 per litre,  while diesel is  RM2.52  per  litre.  Petrol  and  diesel prices  were  last  increased  by  a  20  sen 13 months ago. (The Star)

Comments

Among  the  first  industry  to  be  affected would be the transportation sector, given their  strong  reliance  on  fuel  and  we expect the cascading effect to take hold for  the  remainder  of  the  year  when  the higher  cost  are  passed  through  to  the broader economy.

The  latest  round  of  subsidy  trimming  is also  expected to heighten the near term inflation, which stood at 3.3% in August, and  could  nudge  it  closer  to  the  4.0% level over the next two months.

With the higher cost, we also see a nearterm  margin  compression  on  corporate earnings  and  margins.  The  quantum, however,  will  be  premised  on  how  well the  higher  cost  will  be  absorbed  or passed  on.  Already,  the  median earnings growth estimate on  the broader FBM  EMAS  has  been  trimmed  to  just 1.5%  for  2014  and  we  think  the  latest round of subsidy cut could trim earnings growth further.

Source: M+Online Research - 2 Oct 2014