A short-term market consolidation pattern appears to be in place now. But we anticipate that our Malaysian bourse should resume its upward trend thereafter.

The bellwether FBM KLCI surged to a new high of 1,531.99 last Wednesday before sliding back to close at 1,499.81 on Friday. This translates to a decrease of 11.9-point or 0.8% for the week. Turning in a mixed performance were the FBM 70 Index and the FBM ACE Index with a weekly change of minus 0.2% and +4.7%, respectively. Trading activity, meanwhile, jumped substantially to a daily average of 1.6b shares (from 1.3b units) in volume and RM2.2b (versus RM1.4b) in value.

To put things in perspective, our local bourse performance last week mirrored a broad regional sell-off, especially in the emerging markets. For instance, the major weekly losers included Philippines (-6.3%), India (-4.0%) and Thailand (-2.1%). Over on Wall Street, key U.S. equity indices lost between 2.2% and 2.4% week-on-week.

Quite evidently, the regional equities slump has been tracked by a stronger US$. The greenback
strengthened against the Ringgit (+1.1%), the Philippines Peso (+2.5%), the Indian Rupee (+1.2%) and the Thai Baht (+0.6%) through the week, perhaps reflecting some outflows of funds from the region. While the US$ should arguably experience an extended downtrend in the longer run from a fundamental viewpoint - given the huge supply of dollars in the pipeline thanks to the U.S. Federal Reserve's quantitative easing policy - its intermittent swings may be worth watching to get a sense on the short-term stock market directions across the region.

Back home, the focus will be on the corporate earnings reporting season for the Jul-Sep quarter with an increasing number of listed companies due to announce their financial performance as we approach end- Nov. Scheduled to publish their latest quarterly results this week are Parkson (Monday) and WCT (Thursday).

On the chart, the FBM KLCI - after setting a fresh record high of 1,531.99 before plunging to a trough of 1,488.06 - has tumbled outside the mini positive sloping channel. Interestingly, at its lowest point, the benchmark index touched momentarily the 39-day moving average line before rebounding thereafter. This moving average line could be a useful indicator to gauge the downside support of the FBM KLCI, after it has correctly signaled the position of previous market bottoms on eight occasions since the rally started in mid-Mar last year (see chart next page). Talking about recent market corrections pattern, between late-May this year and now (when our local bourse was in an obvious uptrend), the pullbacks have been relatively mild (down 2%-3%) and fairly quick (lasting 5 to 11 days). If so, then the FBM KLCI - after dropping as much as 2.9% (measured from peak-totrough) in two days - might have hit and bounced up from an intermediate floor by now.

At this juncture, it remains to be seen if a swift and smooth market recovery is presently underway, or a market consolidation phase is still ongoing amid profit-taking temptations. We have drawn our first and second support lines at 1,495 and 1,465, respectively. Yet, in our mind, we believe the FBM KLCI is poised to plot a series of higher highs going forward, which may be forthcoming when it eventually makes a clean breakaway from the immediate resistance target of 1,525.

Report from
HWangDBS