Global indices entered into a correction phase last month amid concerns that the US Federal Reserve may taper its monetary stimulus  should risks to the U.S. economy abate. As a consequence, the Dow Jones Industrial Average slipped 414.9-point (-2.7%) for the month while the European Stoxx 50 index plunged 189.5-point (-6.8%). However, sentiment in Asia mixed, with the MSCI Asia Ex Japan index losing 37.44 points (-6.8%) while Japan’s NIKKEI 225 managed to record 88.29 point (+0.6%) gain in June. In particular, China’s Shanghai SE Composite bore the brunt of the recent sell-down with whopping 338.5 points (-14.6%) loss that due to worries that China’s cash crunch may be worsened. In contrast, a late recovery on local FBM KLCI was fueled by mid-year “window dressing” activity by some big funds. This buoyed the benchmark index to eke out a 4.32-point (+0.24%) gain.

 

FBM KLCI’s June Performance. On the local front, the benchmark FBM KLCI outperformed  its regional counterparts, having obtained a +0.24% MoM gain to close at 1,773.54 on the choppy trading month. The FBM KLCI index recorded a series of losses at second half of June, which filled the runaway gap partially before rebounding. This was due to the swift reversal in the US market amid easing fears of an early end to US monetary stimulus and the Chinese market also showed signs that it is stabilising. On top of that, we believe the recent “window dressing” activity by some big funds was another factor, which buoyed the benchmark index. As the broad market improved at the tail-end of June, the FBM Small Cap index had managed to gain some lost ground after the index plunged as much as 1,395.54 points (-9.1%) from the record closing @ 15,215.54 points (10-Jun). 

 

On Our Technical Watch Monthly Review.  The small cap stock picks in our technical tracker succumbed to profit taking activities due to the large swings in share price movements. Though we had expected June to be a softer month following the stellar post election rally the month before, we did not expect such sheer depth of the recent pullback. Similarly, the previously bullish sectors such as property players and construction stocks also turned against us and we believe investors have turned cautious towards these high beta stocks owing to broader market uncertainty. Out of the 29 technical stock highlights that we 

made during the month, 5 of them were outright BUY recommendations, while the remaining 24 were NOT RATED.  

 

Tracker Review. June’s technical landscape was filled with false signals and a lack of follow-through buying in many stocks. Although our protective stop-loss levels provided some buffer, our realised tracker registered a disappointing 3.59% in losses against FBM KLCI marginal positive MoM return of 0.24%. The steepest losses on our tracker were PENERGY (-14.35%), FACB (-12.69%), and TEBRAU (-9.26%). On the other hand, the gainers did provide a mitigating factor against the wider losses on the tracker. Notable gains for the month include GOB (+16.30%), YEELEE (+8.55%), and PUNCAK (+7.30%). Meanwhile, the only stock still in the running is AFG (+4.74%). 

 

July Technical Strategy. Following a healthy pullback, we believe that this has provided us with a cheaper re-entry into the markets. The longer-term  technical picture remains intact.  In fact, a rebound could be imminent in the near-term. That said, we note that the indicators have weakened following the recent declines. As such, we remain cautious and will likely adopt a more selective approach to our technical recommendations this month. The 1,800 psychological level on the FBM KLCI would be a key  level to watch, and only a decisive breakout above this level would put us on “risk-on” mode.

 

Source: Kenanga