September has historically been the trickiest month in the year for Malaysian equity. The market crashes in 2000, 2001, 2003, 2008 and 2011 all occurred in September.

Investors couldhave been spooked by S&P's report which said Malaysa'ssovereign credit rating may be cut if the government does not deliver promised reforms to cut spending to reduce its fiscal deficits.

It may raise the sovereign credit ratings if stronger growth and the government's effortto reduce spending result in lower than expected deficits. With lower deficits,a significant reduction in government debt is possible.

It may lower the ratings if the government cannot deliver the reform measures to reduce itsfiscal deficits and increase Malaysia's growth prospects. These reforms may include, bit are not limited tothe GST and subsidy reforms on the fiscal side, and private investment and economic diversification reforms on the economic growth agenda.

It would notanother weak September 2012. As manufacturing activities contract worldwide,investors will be cautious about getting exposed to the volatile equity marketin Sept 2012.

The absence of amini QE from Fed speech and warning from S&P to downgrade Malaysia'ssovereign credit rating on lack of fiscal reforms ' as well as Malaysia'sranking slippage in the latest World Economic Forum competitiveness index (Sept2012) ' were excuse given by local investors to close the bets and takeprofit ahead of the potential budget and local election as well as the highlyimportant ECB meeting to solve debt crisis.

The heavy dropbelow 1630 on heavy volume constitute a major support breakdown that confirmedSeptember as seasonally bearish month and basically the change the short termand medium term uptrend to downtrend.

The FBMKLCI maycontinue to further correction to the next support level of 1600.

The local funds and retail players were already net sellers with foreign funds being the netbuyers.

It is worthnothing that valuation of the Malaysiaequities market is very high now (04 Sept 2012), with some big caps stockshaving 30 times PEs. The last time we had such high PEs was in 1993 and afterthat the market crashed, but do not think there will be a crush this timearound (Sept 2012). A trong pull back to just above 1600 is possible.