The key-index is expected to trade between 1,526 and 1,613 with downside bias on the back of weak Ringgit coupled with external market uncertainties. From a technical analysis perspective, the FBMKLCI is poised to stage a rebound given that key indicators are already in deeply oversold levels. Having said that, should there be any technical rebound, we opined that the degree is likely to be insipid in view of the absence of strong fundamentals. Thus, investors who are looking to participate in any potential technical rebounds should focus on the bashed-down blue-chips as well as beneficiaries of stronger USD (i.e. export-oriented sectors/counters). Portfolio-performancewise, most of our model portfolios have deteriorated in value last week, more severe than the overall weak broad market’s performance. Nevertheless, all our portfolios continued to outpace the benchmark index by 866-2,863bps on YTD basis.

Focus on bash down blue chips. The deeply oversold indicators for the FBMKLCI chart suggested that a technical rebound could be imminent. Nevertheless, from the fundamental perspective, the local currency and economy outlook continue to remain challenging, thus providing fewer reasons for a solid rebound. As a result, we believe the local market may continue its de-rating exercise this week with the 30-stocks index likely to trade between the 1,526-1,613 level range with downside bias. Thus, under this scenario, we would advocate investors to stay focused on the bashed down blue chips as well as the net beneficiaries of stronger USD, particularly those companies with solid fundamentals and undemanding valuations. Meanwhile, corporate earnings will continue to remain in the limelight for the next two weeks of which we believe exporters could surprise on the positive side. Thus far, 38 companies under our coverage have reported their 2QCY15 results out of which 66% (25 companies) were in-line and 8% (3) above expectations.

Market beset by both internal and external woes. The FBMKLCI started the week on a feeble note with the key benchmarked index closing lower at 1,654.37 (-28.28pts), no thanks to a weaker-than-expected China’s July PPI (-8.3% YoY) that dampened the already frail local sentiment. In mid-week, came the surprise move by China to devalue its yuan by 2% against the dollar and the local bourse continued to bleed further (dropping to 1,609.93 level (or -27 points) on Wednesday’s closing) with MYR/USD breaching the RM4.00 level, marking a 17-year low. Although Bursa Malaysia rebounded on Thursday with the 30-stock key index closed marginally higher at 1,621.62 level (+0.7%) on positive 2Q15 GDP number, Friday’s closing failed to hold above the 1600 key psychology level as heavyweight index players, namely MAYBANK, TENAGA and AXIATA continued to face severe selling pressures as a result of continued foreign outflow, which led the FBMKLCI to plunge 5.1% WoW to 1,596.82.

Portfolios dented by the overall weak market. Despite already removing all our holdings in CAB and CENTURY to minimise our exposure on the small caps on last Wednesday, the prolonged weak market sentiment continued to dampen our portfolios' performance. The GROWTH portfolio suffered the most with fund value falling by 18.3% WoW, which narrowed its YTD gain to 21.3% (vs. -5.1% WoW and -7.3% YTD in the FBMKLCI), followed by the THEMATIC (-10.6% WoW, 9.6% YTD) and DIVIDEND YIELD (-1.4% WoW, 1.35% YTD). 

Source: Kenanga Research - 17 Aug 2015