BURSA Malaysia shares eased into profit-taking consolidation last week, with both blue chips and penny stocks slipping lower ahead of the extended weekend holiday for Merdeka Day. Trading momentum also slipped a notch as most investors stayed sidelined while digesting the final leg of the second quarter earnings reporting season.
The blue-chip benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) retraced 4.88 points, or 0.26 per cent, last week to 1,866.11, with Petronas Chemicals (-24 sen), AmBank (-32 sen), Petronas Dagangan (-RM 1.60) and Tenaga Nasional Bhd (-12 sen) accounting for most of the index’s loss. Average daily traded volume and value last week slipped to 3.03 billion shares and RM2.31 billion, compared with 4.53 billion shares and RM2.68 billion, respectively, the previous week, as trading momentum on penny stocks moderated with profit-taking dominating trade.
The just-concluded second quarter results season was disappointing and could do little to shore up confidence in the market this week. As such, the benchmark index is expected to continue its downward traction this month before rebounding during the pre-2015 Budget period. Traversing back to earnings season, despite sales rising 4.3 per cent year-on-year, core net profit contracted at a high single-digit rate of 8.4 per cent year-on-year (y-o-y) on rising cost pressure, no thanks to impact from subsidy cuts and competitive pressures that lowered operating margin by almost a percentage point to 21.4 per cent, the lowest in 10 quarters. Rising policy risks would exert more downside pressure on earnings in the near term.
With further subsidy cuts imminent in the upcoming 2015 Budget, which will be tabled on October 10, and another potential increase in interest rate as early as this month or November, possibilities of meeting consensus earnings growth of 8.7 per cent next year would be a daunting task unless 2014 earnings underperform the consensus growth expectations of 4.9 per cent considerably. Taking note of recent softness in crude palm oil (prices) that may remain subdued for the rest of the year and credit tightening among banking institutions, earnings outlook for the second half does not look robust.
As small- and mid-cap plays could be more nimble in handling an inflationary environment, stocks of companies that promise enviable earnings growth, have good business model and are lowly geared could attract investors’ attention.
Sectors like oil and gas, despite registering three consecutive quarters of earnings contraction y-o-y basis, could remain in the limelight with Petroliam Nasional Bhd kick-starting projects for its Refinery and Petrochemical Integrated Development and anticipation of more contract awards for upstream projects starting this month. Besides, there could be selective interest in technology, property, power and industrial sectors as well. Take note that despite worries about the impact of rising interest rate on property sales and credit expansion, property and banking sectors are the only two sectors that had registered uninterrup-ted y-o-y earnings growth for every quarter since 2011.
Looking ahead, investors could still train their eyes on property stocks that have sizeable unbilled sales relative to their revenue, developments along the massive infrastructure projects around Klang Valley and those engaged in affordable segments in the area as demand still outpaced supply.
As for the economic news, Malaysia’s exports data for July this Friday may indicate some softening momentum and fall within consensus expectation of seven per cent
y-o-y after surprising on the upside for a while. With concerns rising over sustainability of Europe’s economic growth, the second half could be challenging to maintain the growth momentum.
Technical Outlook
The local stock market fell for profit-taking correction last Monday, with Hong Leong Financial Group (-60 sen), Petronas Dagangan (-70 sen), Petronas Gas (-54 sen) and Kuala Lumpur Kepong Bhd
(-44 sen) dragging the benchmark index lower, and spilling over to small caps and penny stocks.
The FBM KLCI slid 8.68 points to settle at 1,862.31, off an opening high of 1,873.66 and low of 1,859.58, as losers thrashed gainers 637 to 276 on steady trade totalling three billion shares worth RM1.97 billion. The following day, blue chips slipped into profit-taking consolidation, while small- cap and penny stocks went into a mild consolidation phase with rotational buying interest still highlighting retail participation. The FBM KLCI ended 0.49 point lower at 1,861.82, off an early high of 1,866.57 and low of 1,859.75, as gainers led losers 435 to 382 on improving total turnover of 3.29 billion shares worth RM2.12 billion.
Blue chips climbed on Wednesday, mirroring regional gains on economic recovery optimism after United States consumer confidence hit its highest level since August 2007, while durable goods orders posted their biggest gain on record in July.
The FBM KLCI rose 10.56 points to close at 1,872.38, off an opening low of 1,861.73 and high of 1,878.71, as losers edged gainers 439 to 410 on slower trade totalling 2.63 billion shares worth RM2.4 billion. While blue chips stayed range-bound the next day as investors digest second quarter earnings reports ahead of the month-end deadline, penny stocks eased into profit-taking consolidation mode. The FBM KLCI gained 3.3 points to settle at the day’s high of 1,875.68, off a low of 1,868.48, as losers overcame winners 589 to 275 on active turnover of 3.01 billion shares worth RM2.2 billion.
Small-cap and penny stocks prolonged profit-taking consolidation ahead of the extended weekend holiday, while blue chips staged profit-taking correction with most investors sidelined while poring over the final leg of the second quarter earnings reporting season. The index slumped 9.57 points to end Friday at the day’s low of 1,866.11, off the opening high of 1,879.53, as losers swarmed gainers 660 to 251 on robust trade totaling 3.2 billion shares worth RM2.85 billion.
Trading range for the local blue-chip benchmark index stabilised at 19.95 points last week, compared with the 19.43-point range the previous week, as blue chips extended profit-taking consolidation. The FBM-Emas Index shed 87.15 points, or 0.67 per cent, last week to 12,995.11, while the FBM-Small Cap Index tumbled 462.61 points, or 2.43 per cent to 18,604.61, as small-cap and penny stocks extended profit-taking correction for another week.
The daily slow stochastic momentum indicator for the FBM KLCI is poised for another sell signal near the overbought area following last Friday’s correction, but the weekly indicator’s trigger line inclined for a weak buy signal. The 14-day Relative Strength Index (RSI) indicator hooked down for a negative reading at 48.01, while the 14-week RSI declined to a weaker reading of 53.04 as of last Friday.
On trend indicators, the daily Moving Average Convergence Divergence (MACD) maintained its positive posture following a buy signal the previous week, but the weekly MACD signal line continued to deteriorate and indicate further downward bias. Meanwhile, the -DI has crossed above the +DI line on the 14-day Directional Movement Index (DMI) trend indicator, signalling further correction.
Conclusion
With technical indicators retreating from their recovery posture following last week’s correction, the FBM KLCI is likely to fall into extended profit-taking consolidation for another week. The lack of positive domestic catalysts to lift the market further from current eleva-ted levels could see profit-taking and selling dominating trading. Nonetheless, while blue chips extend consolidation, penny stocks should continue to attract retail participation with rotational speculative plays.
Immediate resistance for the index stays at 1,875, the 50-day moving average level, next will be the upper Bollinger band at 1,885, followed by the 1,900 psychological level. Immediate support will be at last week’s low of 1,859, while crucial uptrend support remains at 1,847, the current 200-day moving average level, which is reinforced by the flattening lower Bollinger band at 1,845.
The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.