Global indices suffered a late-month retreat as investors locked in prior gains after a 7-month rally which sent the markets into fresh all-time highs. Even so, the Dow Jones Industrial Average still managed to notch a 276-point return (+1.8%) for the month while the European Stoxx 50 index also managed to record a 58-point (+2.0%) gain. However, sentiment in Asia was less sanguine, and the MSCI Asia Ex Japan index lost 9 points (-1.6%) in May. Japan's stock index Nikkei 225 bore the brunt of the recent sell-down, and even though it had only lost 86 points (-0.01%) month-on-month, it is worth a mention that the 225-stock index tumbled  as much as 1850 points (-11.9%) from its 15,627 point high barely two weeks ago, which places the index into a bear market.   

FBM KLCI’s May Performance.  On the local front, the benchmark FBM KLCI starkly outperformed its regional counterparts. It is hard to imagine that the 13th General Elections were concluded just a month back, and when the markets reopened for trading on the 6th of May, the 30-stock index surged as much as 130 points during the intraday trade to a high of 1,826. The initial euphoria was, however, short-lived, and the FBM KLCI ended the month with a 52-point gain or 3.0% to settle at 1769.22.  The improvement in broad market sentiment was even more pronounced, with the FBM Small Cap index rallying 2910 points (24.1%) at 14,971.13. Rotational play towards the small caps and penny stocks were apparent during the month as retail investors jumped aboard the band wagon after shunning risky assets for the most part of the past year.

On Our Technical Watch Monthly Review. Like-wise, we turned slightly more optimistic in our technical recommendations post elections, as we believe that follow-through buying would propel the local stocks to greater heights. In particular, the FBM KLCI had managed a strong breakout of the 1,700-1718 congestion zone at the start of the month, and this was our cue to buy into the markets. Of the 33 technical stock highlights that we made in the month, 7 of them were outright BUY recommendations, while the remaining 26 were NOT RATED. Notably, we had a clear preference for property (CRESNDO and TEBRAU) and construction stocks (PUNCAK and WCT) as investor sentiment towards these stocks had already been bullish prior to the elections. The subsequent breakouts on the stocks marked a continuation of the bullish trend, and we were quick to react on the BUY signals generated. 

Tracker Review.  Our recommendations played out mostly to our expectations, and the month of May gave us our best monthly performance yet. Our realised tracker registered a decent 15.8% return which outperformed the benchmark FBM KLCI by a wide margin (11.4 percentage points) - also bringing our track record to a fifth monthly gain since the inception of our Monthly Technical Review at the start of the year. Gains on the tracker were recorded on DRBHCOM (+10.6%), IJM (+9.5%) and CRESNDO (+27.1%), while running stocks include TEBRAU (+6.8%), YEELEE (+2.6%), PUNCAK (+0.6%), WCT (-2.2%), FACBIN (-7.5%) and PENERGY (-6.5%). 

June Technical Strategy. In spite of the improvement in market sentiment the past few weeks, the technical picture suggests that local stocks are heavily overbought. Thus far, the rally had been unrelenting. Hence, we believe that a healthy pullback is overdue. In fact, the FBM KLCI has already been consolidating sideways, while the FBM Small Cap index is now just sporting toppish signs (Notice the "Shooting Star" and "Spinning Top" candlestick patterns over the past 4 trading days). Having said that, the overall technical picture remains positive, and we suspect that any weakness in the market would likely be temporary at best. This could potentially offer yet another cheap entry into stocks once the dust settles. 

Source: Kenanga