Economy Outlook: KLCI Stood Still Amid Dropping World Indices. Malaysia Boleh?

Economy Outlook: KLCI Stood Still Amid Dropping World Indices. Malaysia Boleh?

1. 21st of August 2015 is a significant day to remember. Almost all the major indices in the world closed red. (See pictures below taken from Yahoo)

2. Shanghai Composite Index led the fall, by closing -4.27%, then Taiwan Weighted Index was the second biggest loser at -3.02%. Even Hong Kong and Singapore indices also closed down 1.53% and 1.29% respectively.

3. Among all the Asia Pacific major indices, New Zealand NZSE 50 index was the only winner of the day. Surprisingly, KLSE was the strongest among all the loser, with only 0.17% lower at closing.

4. Dow Jones Index also saw a decline of 531 point on Friday trading. According to CNN Money, the 3 main reason the global market contracted are :
i) Slowing China economy - the world second largest economy
ii) Uncertainty in US federal rate revision in September as the federal bak has been sending "mixed signals"
iii) Commodity prices has weaker trend

5. Question: Does this means that KLSE is stronger than the rest of the Asia Pacific major capital markets? We all know that KLSE has just taken a hard fall recently, following a series of political scandal involving PM Datuk Seri Najib Tun Razak,

6. The situation was exaggerated by devaluation of Yuan and falling commodity prices, which induced fear among global investor, and constant exodus of funds from Malaysia is frequently observed.

7. Let's study the day chart of KLSE on 21st August 2015 as per attached below:

8. The Index is opened lower in the morning session but gained it's strength subsequently over the first half session. In the second session, the index was supported above the opening position, until the pre-closing. At the end of the session, the index closed down 0.17%.

9. Lets see what happened to Shanghai Index and Taiwan Index

10. Both the top losers are seen a constant downtrend in their index movement. Even SSE shows a higher movement, the downtrend can still be observed.

11. Now let's look at the Bursa Malaysia Daily Trading Statistics on the day.

12. Notice that overall, the foreign funds are still exiting the markets. The trading volume of the day are seen above RM 2 billion significant level. Local institutions are seen at net buying position.

13. Inference: The local institutions are actively buying the stocks to support, instead of taking a passive position to defend the market. This could be a sign that the resilience we seen in the KLSE last Friday was artificial.

14. If local institutions EPF, RFI, Tabung Haji, Unit Trust funds etc to support the local market indifinitely, how long can they sustain? That is a different topic we will discuss in another separate post. Stay Tuned.