A gradual recovery could be on the way as our Malaysian bourse leverages on the positive signs generated last week.

After tumbling to a low of 1,474.02, the benchmark FBM KLCI staged a quick turnaround to end the week at 1,500.98 for a weekly increase of 8.9-point or 0.6%. Finishing mixed through the week though were the FBM 70 Index (+0.6%) and the FBM ACE Index (-1.8%). Trading activity slowed to a daily average of 979.4m shares (from 1.2b units) in volume and RM1.7b (RM2.1b before) in value. Foreigners were net buyers of Malaysian equities for the sixth straight month. According to Bursa Malaysia's record published last week, net buying by foreign investors (who accounted for 29% of total trading value) came up to RM0.9b in Nov (less than Oct's RM1.8b). This adds to a cumulative figure of RM14b as foreigners bought more shares than they sold every month since Jun this year.

On the local side, domestic institutional investors turned from net sellers (of RM1.4b in Oct) to net buyers (of RM0.5b in Nov) after contributing to 30% of overall trading value last month. Meanwhile, net selling from local retail investors remained at RM0.1b in Nov while local nominees were the largest net sellers (with a combined sum of RM1.4b versus -RM0.2b in Oct).
News flows on tap this week include:
(a) the index of industrial production (IPI) for Oct due on Thursday; and
(b) the plantation statistics (on production, inventory and export) for Nov to be out on Friday. Between the two, the latter should be of greater interest given the 3-month forward CPO price run-up to RM3,509 per tonne currently , its highest level since mid-Jul 08.

Continuing from where it left off last week, there is a chance that the FBM KLCI may build on the recovery momentum in the coming weeks, albeit slowly and steadily. From peak-to-trough, the bellwether has pulled back as much as 3.8% in 12 days before bouncing up to its present level. From a technical perspective, it could have found a short-term bottom already. This is indicated too by the 39-day moving average (MA) line after it had cushioned the index's slide last week. On the eight previous occasions (since mid-Mar 09) when this had happened, the FBM KLCI turned up and made a subsequent recovery (see chart overleaf).

A recent breakout from a minor negative sloping channel also suggests that the momentum is on the rise. If so, then the FBM KLCI could be making its way to the immediate resistance hurdle of 1,525. Thereafter, the benchmark index is expected to climb over its record peak of 1,531.99 (reached on 10 Nov) and chart new highs going forward, extending the market rally towards the next resistance target of 1,550.

On the downside, should the consolidation persist, we expect 1,495 and 1,465 to act as the first and second support levels for the FBM KLCI.

Report from HWangDBS