While the technical rebound in the FBM KLCI may carry on a little longer ' which is not exactly a surprise after dropping in nine of the last 13 weeks ' this has not changed our view that downside risks are still looming in the horizon. We reckon the resistance hurdles of 1,415 and 1,445 could stop the bellwether's progress going forward.

Following an initial fall to a low of 1,353.45, the FBM KLCI recovered subsequently to settle at 1,400.05 last Friday, a weekly increase of 12.9-point or 0.9%. Finishing up too for the week were the FBM 70 Index (+0.4%) and the FBM ACE Index (+1.4%). Trading activity, nevertheless, eased from a daily average volume of 965.0m units worth RM1.6b to 816.6m shares valued at RM1.2b. Investors will kick off this week by checking for possible stock market implications arising from the 2012 Budget, which was unveiled late Friday afternoon. Our sense is that the immediate reaction will likely be broadly neutral. Nevertheless, there could be a mixed bag of impact on selective sectors. Construction companies may stand to benefit from the proposed implementation of double-tracking rail project, building of highways and redevelopment of Sungei Besi Kuala Lumpur air base while consumer stocks could get a lift from the extra money in the pockets of the low and mid-income groups. Real Estate Investment Trusts (REITs) will also enjoy an extension in the concessionary tax rate incentive of 10% on dividends by another five years.

On the other hand, property sector will be hit by a multi-tier real property gains tax (RPGT) structure, comprising 10% (for disposals within two years), 5% (if disposed of after the second year until the fifth year) and nil (for disposals after five years). Meanwhile, the plan to list Felda Global Ventures Holding as a mega plantation conglomerate (by mid-2012) and more Exchange Traded Funds (ETFs) will broaden the investment choices on Bursa Malaysia. In addition to the budget assessment, of interest too in the week ahead are news relating to: (a) plantation statistics (on production, exports, inventory) for Sep to be out today, which may shift the outlook for crude palm oil (CPO) price (after falling to a 12-month low at RM2,772 per tonne); (b) the index of industrial production (IPI) for Aug scheduled on Tuesday; and (c) quarterly financial results for Top Glove also due on Tuesday.

This comes as Malaysia equities remain vulnerable to future foreign sell-offs. Statistics provided by the stock exchange last week revealed net foreign selling amount of just USD0.1b in Sep (when the FBM KLCI lost 4.2%), versus an outflow of USD1.3b in Aug (following a 6.6% fall in the index). In contrast, around the region, foreigners were net sellers last month in Thailand (-USD542m) and Philippines (-USD138m) but bought more shares than they sold in Indonesia (+USD172m).

Technically speaking, the FBM KLCI could have found a temporary footing after bouncing up from a short term bottom of 1,310.53 in late Sep this year. And the relief rally may stretch on for a while more, which is not really surprising considering that the key market barometer is still down by 195-point or 12% since three months ago. But we believe the worst is not over yet. When the selling momentum returns, the bears would likely force the FBM KLCI to challenge the support lines of 1,395 and 1,345. A resumption of the bearish trend could be forthcoming should the bellwether plot a lower low by dropping below its recent trough of 1,310. On the upside, we expect the benchmark index to hit a stumbling block at the 1,415 (first) and 1,445 (next) resistance levels. Also standing in its way is a downward sloping trend line, which should cap the FBM KLCI's