Bank Fear Sends S&P To Worst-Ever Start To A Year

NEW YORK: US stocks fell and the S&P 500 marked its worst-ever start to a year on Feb 27, after the government said it will take a large stake in Citigroup's common shares, fanning fears it will increase its role in other major banks, Reuters reported. The decline closed out a grim month on Wall Street, with the Dow industrials hitting the lowest level since May 1997 as the blue-chip index fell for a sixth straight month.

Healthcare and drug companies, such as Merck & Co and Johnson & Johnson Inc, fell for a second day on Feb 27 on worries that US President Barack Obama's budget proposal will strangle profits as the administration tries to rein in healthcare costs.

Data showing the US economy shrank at an annual rate of 6.2 percent last quarter also weighed on the market. Citigroup shares tumbled 39 percent after the government said it will convert up to US$25 billion in the bank's preferred shares to common stock in a move that could dilute existing shareholders' ownership by 74 percent. The S&P financial index sank 8.1 percent.

"There are continued beliefs that Citibank is not the last bank that the government will take a large stake in," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York. "Some people believe that if the government takes a 30 to 40 percent stake, which they did in Citibank, that would be considered some form of nationalization," he said.

The Dow Jones industrial average dropped 119.15 points, or 1.66 percent, to 7,062.93. The Standard & Poor's 500 Index fell 17.74 points, or 2.36 percent, to 735.09. The Nasdaq Composite Index slipped 13.63 points, or 0.98 percent, to 1,377.84. The Feb 27 close marked the lowest level for the S&P 500 since December 1996. The S&P 500 is down 18.62 percent since the start of the year, its worst two-month start on record. - Reuters

Taleb Says Crisis Is Harder to End Than Depression (Update1)

(Bloomberg) -- The financial crisis will be harder to end than the Great Depression and may force banks to be nationalized, “Black Swan” author Nassim Nicholas Taleb said. A more complex financial system makes the current problems, which cut global stock market value by 55 percent to $28 trillion since October 2007, worse than the contraction in the 1930s, Taleb said in a Bloomberg Television interview today. Bonuses paid on Wall Street encouraged risk taking with no regard for losses, he added.

Rare and unforeseen events are known as “black swans,” after Taleb’s 2007 book, “The Black Swan: The Impact of the Highly Improbable.” The financial crisis isn’t one, he said.

“The black swan for me would be for us to emerge out of this unscathed and return to normalcy,” Taleb said. Compared with the Great Depression, this crisis is “very different, and it requires much more drastic action.”

Taleb’s book was published in May 2007, about three months before the credit crunch led banks to announce writedowns and credit losses that now total more than $1 trillion.

As the founder of New York-based Empirica LLC, a hedge-fund firm he ran for six years before closing it in 2004, Taleb built a strategy based on options trading to bullet-proof investors from market slumps while profiting from rallies.

He now advises Universa Investments LP, a Santa Monica, California-based firm opened in 2007 by Mark Spitznagel, Taleb’s former trading partner, using some of the same strategies they had used since 1999. Taleb also is professor of risk engineering at New York University.

Financial stocks in the Standard & Poor’s 500 Index tumbled 57 percent last year and are down 43 percent this year for the worst performance among 10 industry groups. The broader index fell 3.5 percent today to the lowest since April 1997, extending this year’s retreat to 18 percent.

HOLD On To CASH

What should investors do during tough times? As cliché as it sounds, cash remains king when times are tough and investors should hold cash at the moment, said professional futures trader Brent Penfold.

“Although no market is linear and goes down forever as prices will recover and good times would present themselves again, in my opinion, there is no rush to invest in shares now,” he told The Edge Financial Daily via email recently.

“At the moment, it is best to continue to be patient, remain in cash and preserve capital,” said Penfold, who had been trading for over 23 years since he joined Bank of America as a trainee dealer in December 1983.

Penfold said he remained bearish on the Kuala Lumpur Composite Index (KLCI). “The Malaysian share market would continue to struggle whilst the KLCI remains under 1,072 points,” he said, adding that he had been negative on the index since March 2008 when it fell below 1,247 points.

At 889.71 points last Friday, the KLCI had shed close to 37% of its value over the past one year. The fall was in tandem with other bourses on concerns over a deepening global recession. Year-on-year (y-o-y), the Dow Jones Industrial Average had lost 39% to 7,465.95 points on Feb 19. Meanwhile, the Singapore Straits Times Index had fallen 47% to 1,594.94 points, while the Hang Seng Index had lost about 47% to 12,699.17 points.

“I would not be trying to pick a bottom here,” Penfold said. He also said it would be prudent for investors to remain cautious. “Looking at the US and China, the world’s two most important markets, all I can see is negativity. Negativity for me means patience. There is no rush to invest in any shares at the moment,” Penfold said.

He had authored Trading the SPI and Back to Basics Trading. He is also featured in the daily newsletter IndexALERT. Penfold would be presenting two papers — Index trading strategies to grow your capital in uncertain times and Cycle Point — at the Asia Trader & Investor Convention on March 14 and 15 at the Kuala Lumpur Convention Centre.

Genting Berhad. Drops Most In A Month.

GENTING Bhd dropped the most in a month in Kuala Lumpur trading after its overseas unit, which is building a casino and theme park in Singapore, said the opening costs have increased and will erode earnings this year.

Shares of Genting, Asia’s biggest listed casino operator, slid 1.1 per cent to RM3.58 at close, the steepest decline since January 20. Genting International Plc said yesterday the opening costs for the so-called integrated resort will have a “significant” impact on its earnings this year. It will increase its investment in the resort to S$6.6 billion (US$4.3 billion) from S$6 billion, the company said.

The company now expects a lower internal rate of return of 13-14 per cent from the Singapore project compared with 15 per cent previously, because of the global recession, Maybank Investment Bank Bhd said in a report today. Maybank Investment lowered its target price on Malaysia’s Genting to RM4.30 from RM4.80.

Genting International said yesterday the Singapore casino is “on track” to open by early 2010 and more than S$4.5 billion in construction contracts have been given out for the resort, which will include Southeast Asia’s first Universal Studios. Singapore's tourism chief said yesterday that the island republic won’t change its casino regulations even as it pledges to “help” Genting International Plc and Las Vegas Sands Corp ensure the opening of their gaming resorts in the city-state.

Singapore isn’t considering relaxing rules imposed to curb problem gambling, including a S$100 ($65) a day levy on citizens and permanent residents entering the casinos, even as the global slowdown reduces visitor numbers to the country, said Aw Kah Peng, chief executive officer at the Singapore Tourism Board.

“Just as they have taken a long-term business decision, and we have also designed some of these regulations with a long-term view, I don’t think it is about changing it arbitrarily,” Aw said in an interview yesterday. “We are working very hard and they are working very hard, we will make sure we help as much as we can to make sure they open.” - Bloomberg

Technical Speaking S.N.Lock 22-02-2009

The Composite Index is bracing for further consolidation in staging a re-test of its immediate downside support at 867 level.

SHARE prices on Bursa Malaysia pulled back in tandem with Wall Street and regional stock markets after their recent rebounds. The Kuala Lumpur Composite Index (KLCI) slipped below its critical support of 900 when it closed at 889.71 points yesterday.

The KLCI opened at 908.36 points before drifting lower to close at 907.19 on Monday, giving a day-on-day loss of 2.65 points, or 0.29 per cent. Share prices on Bursa Malaysia gapped down in its opening before succumbing to persistent selling pressure on Tuesday. The KLCI closed lower at 898.53 points, giving a day-on-day loss of 8.66 points, or 0.95 per cent.

The KLCI extended its follow-through consolidations on Wednesday. The index closed off its day's low at 895.23 points, giving a day-on-day loss of 3.30 points, or 0.37 per cent. Overall market sentiment paused for a mild technical rebound after three consecutive days' of technical pullbacks. The KLCI rebounded to close at 899.59, giving a day-on-day gain of 4.36 points, or 0.49 per cent.

The KLCI resumed its prior technical pullbacks, in step with the major weaknesses on Wall Street and regional stock markets yesterday. It closed broadly lower at 889.71 points, giving a day-on-day loss of 9.88 points, or 1.10 per cent.

The KLCI closed lower at 889.71 points yesterday, giving a week-on-week loss of 20.13 points, or 2.21 per cent. The FTSE Bursa Malaysia Second Board Index eased 25.46 points, or 0.64 per cent, to 3,980.49 level while the FTSE Bursa Malaysia Mesdaq Index lost 164.94 points, or 4.99 per cent, to 3,142.17 level.

Following are the readings of some of its technical indicators:

Moving Averages: The KLCI had since stayed above its 20- and 50-day moving averages. It continued to stay below its longer term 10-, 30-, 100- and 200-day moving averages.

Momentum Index: Its short-term momentum index continued to stay precariously above the support of its neutral reference line.

On Balance Volume: Its short-term OBV trend stayed below the support of its 10-day exponential moving averages.

Relative Strength Index: Its 14-day RSI stood at the 49.39 per cent level on Friday.

Outlook

The KLCI's technical pullbacks hit its intra-week low of 888.70 yesterday, staging a re-test of this column's envisaged support zone (871 to 905 levels).

Chartwise, the KLCI staged a re-test of its immediate downside support (See KLCI's weekly chart - A1:A2). It continued to stay above its resistance-turned-support trendline (A7:A8).
The KLCI's daily trend rested on the support of its recently established uptrend (See KLCI's daily chart - B5:B6) yesterday.

It stayed above its intermediate-term downtrend (B3:B4). The KLCI's daily fast MACD (moving average convergence divergence) stayed precariously above its daily slow MACD yesterday. Its weekly fast MACD continued to stay above its weekly slow MACD while its monthly fast MACD continued to stay below its monthly slow MACD.

The KLCI's 14-day RSI stayed at 48.39 per cent level yesterday. Its 14-week and 14-month RSI stayed at 39.57 and 31.57 per cent levels respectively. As it turned out, the KLCI failed in its bid to completely cover its 3.13-point gap (907.15 to 910.28 levels) traced out on January 15.

With that, the KLCI is bracing for further consolidation in staging a re-test of its immediate downside support at 867 level. Next week, the KLCI's envisaged resistance zone hovers at the 893 to 927 levels while its immediate downside support is at the 852 to 886 levels.

Article from Business Times.com

Downside Surprises From IOI Corporation ?

Exceptional losses could wipe off 20-25 per cent from IOI Corp's 2009 fiscal profit, says an analyst at RHB Research.

PLANTER IOI Corp Bhd's second quarter financial results, out this Friday, may hold some downside surprises in the form of more foreign exchange (forex) losses and a property writedown, analysts said. RHB Research said there might be a transactional forex loss of RM100 million and a writedown of the value of its Sentosa Cove project in Singapore.

The latter could result in a group loss of between RM185 million and RM247 million. "Exceptional losses could wipe off 20-25 per cent from IOI's 2009 fiscal profit," analyst Hoe Lee Leng said in a report yesterday.

She expects IOI to record a lower net profit of about RM1.5 billion for the full year ending June 30 3009, but this forecast does not include the potential exceptional items for the second quarter.

IOI recorded a realised forex loss of RM100.6 million in its first quarter.RHB Research also believes that revenue from the IOI group's plantation division could be lower than expected in the second quarter due to defaulted transactions. Contributions from the group's manufacturing and property divisions might also be weaker than thought. Other research houses are also expecting the group to record lower profit this fiscal year compared with last year's RM2.2 billion.

TA Securities analyst James Ratnam said that he expected the group to record further forex losses this year from borrowings and hedging contracts.He sees the group making a net profit of RM1.5 billion for the full year, while CIMB Research has forecast RM1.4 billion. Both forecasts do not take into account potential forex losses.

Most analysts tracking the group have a negative recommendation on its shares, according to Bloomberg data. Hoe maintained an "underperform" call on the stock with a target price of RM3.80. IOI shares shed 2 sen to RM3.84 yesterday. "Should IOI report the exceptional losses in its (second quarter) results, some investors might be caught by surprise and might sell down its shares, which could provide an opportunity to accumulate IOI on weakness," she said.

Article from Business Times.com

Japan Growth Plunges To A 35-Year Low

Japan's government faced pressure for another stimulus package on Monday after plunging exports pushed the country, the world's second largest economy, into its worst slump in 35 years.

Economists see little prospect for a quick rebound after a quarter-on-quarter fall of 3.3 per cent in gross domestic product in the last three months of 2008.

The decline was worse than economists had forecast and equivalent to an annualised fall of 12.7 per cent – the steepest drop since 1974 when import-dependent Japan suffered because of soaring oil prices.

This time, collapsing demand for exports and weak domestic consumption are to blame. "This is the biggest economic crisis since the war," said Kaoru Yosano, minister for economic and fiscal policy.

Government leaders have resisted announcing new action as a stimulus package drawn up last year, which includes a Y2,000bn ($22bn) cash handout, and the main budget for the year from April, move slowly through a parliament in which the opposition controls the upper house.

The decline in GDP is fuelling calls for more aggressive measures from the government and the Bank of Japan. Senior members of the ruling Liberal Democratic party have called for a stimulus package of up to Y30,000bn to be drawn up. Mr Yosano acknowledged that there was a need to "exercise our minds" to find policies to boost the economy but said there was no obvious "good way" to spend so much money.

"The important thing is to handle matters calmly. Noisily running around in circles won't solve anything," said Mr Yosano, who has long stressed the need for Japan's highly indebted state to rebuild its fiscal position. The opposition Democratic party has been emboldened by comments by Junichiro Koizumi, LDP Diet member and former prime minister, who said there was no need for the ruling party to use its two-thirds majority in the lower house to push through the handout plan.

Economists warned on Monday that the current quarter could be as bad as the last three months of 2008 and that recovery would be complicated by looming deflation even if the rate of decline in GDP slowed down. While plunging net exports accounted for three percentage points of the fourth-quarter drop in GDP, private consumption also fell – a sign of the effect on sentiment of layoffs and production line shutdowns by some of Japan's biggest companies.

"The deterioration is penetrating into households," said Kyohei Morita, chief economist at Barclays Capital in Japan. Fears of an equally dismal contraction this quarter have been fuelled by a positive contribution of 0.4 percentage points to GDP from growing inventories in the last three months of 2008.

Mure Dickie in Tokyo, Financial Times

Market Outlook by Kaladher Govindan 15.02.2009

Look To Sell Into This Bear Market Rally.

Investors should look for profit-taking or selling on rally oppurtunities this week in blue-chip construction-related stocks such as Gamuda and IJM Corp and lower-liner constructions stocks MRCB, Tebrau, UEM Land, WCT and Zelan.

THE strong rebound in Tenaga Nasional Bhd (TNB) shares last week which contributed more than a third to the local benchmark Kuala Lumpur Composite Index's (KLCI) gain was the highlight, supplemented by rallies in water-related stocks following the surprise announcement by the Selangor state government of a privatisation plan for its water supply assets.

The approval of Malaysia Airports Holdings Bhd's long overdue corporate restructuring plan contributed to the positive sentiment in the market last week while a recovery nearer to RM2,000 in crude palm oil prices attracted buying interest in some plantation counters as well.

The KLCI was up 13.2 points, or 1.5 per cent, week-on-week to 909.84, while daily average trading volume and value improved to 404.8 million shares and RM639.4 million respectively, compared with 328.5 million shares and RM511.4 million in the previous week.

The above factors injected positive vibes into the market that surprisingly held up well from reacting negatively to weaker-than-expected trade numbers released last Thursday. Exports contracted at a double-digit rate of 14.9 per cent year-on-year while imports dived 23.1 per cent for the month of December as global demand shrank, especially for electrical and electronic products.

The trend is not isolated as similar contractions were seen in Japan, China, Hong Kong, Thailand, Singapore and the Phillipines. The point to note is that the 26.8 per cent plunge in imports of intermediate goods is a telltale sign of weaker exports ahead.

Thus, everything boils back to domestic expansion to drive the local economy. It is crucial that the measures in the "mini budget" to be announced on March 10 address the structural weaknesses in the economy while focusing on revenue-generating ventures. It was expected earlier that the allocation for a second stimulus package could be around RM10 billion but in the light of the current economic conditions the amount could potentially double. Budget deficit and sovereign ratings aside, economic growth and faster execution should be the main concern now to thwart a technical recession, which appears highly possible now.

Bank Negara Malaysia has indicated that the Overnight Policy Rate will remain for the time being. As economic conditions in the US, Japan, Europe and China are not expected to show improvement until the fourth quarter, a wait-and-see approach may not be appropriate as the local job market is already shrinking and it is only a matter of time before the consumption scare takes its toll on private investment and domestic demand.

The reducing inflationary pressures should provide some comfort for further monetary easing as early as April this year. The January Consumer Price Index (CPI) figure will be out on Wednesday along with manufacturing sales numbers. Consensus expectations point to a CPI of 3.9 per cent against 4.4 per cent for December and the number could dive below 2 per cent later this year with reduction in electricity tariffs and fuel prices.

Last week's bear market rally is expected to continue this week. The US market could contribute to that with President Barack Obama expected to provide more details on his proposals to address declining home prices and rising foreclosures this week. Look out for exit opportunities at around 949 this week.

Article from Business Times.com

Profit Alerts Signal More Pain In China

BEIJING -- A string of dire profit warnings has signaled a rapid deterioration in the financial health of Chinese companies on which the world's third-biggest economy heavily depends, putting more pressure on the government to enhance its stimulus efforts. Corporate investment is hugely important to China's economy, where capital spending accounts for more than 40% of annual output, one of the highest ratios in the world.

The profit decline will have major effects across the economy as companies have less money to buy new equipment or expand their businesses.Weaker private-sector investment means China's growth this year will be even more dependent on the success of the government's big spending plans -- which many observers say need to be beefed up. With global and domestic economic growth both continuing to weaken, China's profit outlook for this year is likely to be at least as bad.

"Profits and profitability in 2009 will be very poor, and this is the key reason why I do not expect much private investment -- especially in the manufacturing sector where China suffers from an overcapacity problem," said Wang Qing, China economist for Morgan Stanley. He's expecting zero growth in manufacturing investment this year and a 12% drop in real-estate investment.

The profit warnings are coming weeks ahead of China's official corporate reporting season, as companies are required to give advance notice of particularly big swings in profits. The warnings have come from a range of industries, but companies tied to shrinking global trade are particularly badly hit. China Shipping Container Lines Co. Ltd. has warned investors annual profits for 2008 fell more than 50%.

The world's largest producer of shipping containers, China International Marine Container, said its annual profit likely dropped about 53% to 1.5 billion yuan ($219 million). Output of its main product, dry-bulk containers, "basically stopped in the fourth quarter," CIMC said. Businesses focused on China's domestic market are also in trouble. SAIC Motor Corporation Ltd., the biggest local auto maker by sales, warned of a profit decline of more than 50% on weaker sales.

Most steelmakers are losing money as construction dries up. Financial giant China Life Insurance Co., hammered by the stock market decline and tougher competition, also said it expects a more than 50% drop in profits. Broader official surveys back up the trend. Profits of industrial companies plunged 27% in the three months to November, according to government statistics, a sharp reversal from a years-long string of 20% to 40% growth.

Economists have long warned that Chinese companies' heavy reliance on retained profits would tend to exaggerate swings in the nation's investment cycle. Official statistics show that 63% of investment in China last year was financed by what are called "internally generated" funds, which include retained profits. That's up from just below 50% a decade ago.

During boom times, high profits get plowed back into new projects -- evidenced by the plethora of shiny new corporate headquarters that dot big cities such as Beijing and Shanghai. Now, some of those investments don't look as smart, and shrinking profits are making it more difficult for companies to fund different ones.

Avoiding that boom-bust cycle was one reason why organizations such as the World Bank had argued that China's government should collect dividends from the companies it owns, which include most of the country's biggest corporations. From the late 1990s, the government allowed state companies to retain all their profits -- money the enterprises were naturally reluctant to yield during the recent boom.

But after an intense political wrangle, a dividend system was put in place by early 2008. Details of the system are sketchy, but the programs financed from those payments had a budget last year of 54.78 billion yuan. That suggests the companies owned by the central government are paying average dividends of 7% to 8% of their profits. Still, that move came too late to ease the peak of the investment cycle, since business was already starting to worsen early in 2008.

The expected downturn in corporate investment this year is one reason many investors are skeptical that the Chinese government's four trillion yuan stimulus plan will be able to maintain an expansion at the speed to which China is accustomed. The plan, announced in November, is encumbered by its dependence in part on corporate spending. The IMF is now forecasting China's economy to expand 6.7% this year, which would be the slowest rate in two decades.

Some other estimates are even lower."It is inconceivable that the government could spend enough to make up for the collapse that is likely to result from this unprecedented period of overinvestment," said Joseph Taylor, emerging markets strategist at Loomis, Sayles & Co., a Boston fund manager. He thinks that lost capital spending this year could be as much as 15% of China's annual gross domestic product.

Some government-controlled companies are doing their patriotic duty and boosting investment plans during the downturn. Offshore oil producer CNOOC Ltd. plans to increase capital expenditure by 19% this year, to $6.76 billion, as it tries to boost output. Telecom companies are also spending big this year to roll out new mobile-phone networks that use high-speed 3G technology.

But many other companies will struggle just to use the capacity they already have, and are unlikely to want to add to it. China's steelmakers collectively had the capacity to produce 600 million tons of crude steel by the end of 2008, but managed to sell only just over 500 million tons last year. Squeezed by falling demand and high costs, Angang Steel Co. warned investors last month that its annual profit is likely to fall by 55% to 3.42 billion yuan.

Article from Jesper Lee - Cimb

New Route To Economic Sustainability - Tun Dr. Mahathir

The main thing is to increase income so that the economy will rise through higher consumption of local products, says Tun Dr Mahathir Mohamad in an interview with Business Times. MALAYSIA needs to conduct a careful study on ways to turn the country into a high-cost, high-wage one to ensure the sustainability of its economy in the years to come, former prime minister Tun Dr Mahathir Mohamad says.

This is a way to move forward, but should not be at the expense of losing its competitiveness, especially against major countries such as India and China.

"The main thing is to increase the income of our people so that the economy will rise through higher consumption of local products," he said, adding that with high income, the people too must be prepared to pay higher prices for products and services.

In an interview with Business Times last week, Dr Mahathir noted that such a transformation cannot happen overnight, and careful planning and study have to be done. He said Malaysia first needs to find out what kind of business or industry it can excel in and work on increasing efficiency through more automation and innovation, "so we can have less labour cost but higher wages".

He cited Singapore as a country that not only found its niche in financial services, but had managed to increase both its gross domestic product and per capita, disposal income of its people, to reach a developed nation status. "Since their separation from Malaysia, every year they (Singapore) increased their wages but remained prosperous, although not so now," he said, referring to Singapore's recession.

He has suggested to the private sector to take the lead in achieving this transformation, but with significant role-playing by the government. He said from his discussions with the local business fraternity, they are all for making Malaysia a high-cost, high-wage country. "That is the only way to compete," Dr Mahathir said.

Touching on the private sector's practise of cutting workers' wages when times are bad, the former premier said such a move is not desirable. He said there are many ways to reduce cost, but wage cut should not be it as it stops people from buying goods, which in turn will hamper business activities and this can further deteriorate an economy.

Articles from Business Times.com

Technical Speaking S.N.Lock 08-02-2009

SHARE prices on Bursa Malaysia rebounded in tandem with technical rebounds on Wall Street and regional stock markets over the last four trading days. The Kuala Lumpur Composite Index (KLCI) continued to stay below its critical support of 900 when it closed at 896.64 points yesterday.

The KLCI opened marginally higher at 886.18 points before falling back to its intra-day low of 873.46 on Tuesday. The KLCI closed at 879.67 points, giving a day-on-day loss of 4.78 points, or 0.54 per cent. Prices on Bursa Malaysia continued to consolidate sideways on Wednesday. The KLCI closed at 876.80 points, giving a day-on-day loss of 2.87 points, or 0.33 per cent.

The KLCI held on to its technical composure when it opened lower before rebounding to close at 879.95 points on Thursday, giving a day-on-day gain of 3.15 points, or 0.36 per cent. Shares on Bursa Malaysia rebounded sharply on news of swearing in of the new Menteri Besar of Perak.

The KLCI rebounded to close at the day’s high of 896.64 yesterday, posting a day-on-day gain of 16.69 points, or 1.90 per cent. The KLCI closed higher at 896.64 points yesterday, giving a week-on-week gain of 12.19 points, or 1.38 per cent. The FTSE Bursa Malaysia Second Board Index eased 13.51 points, or 0.34 per cent, to 3,925.11 level while the FTSE Bursa Malaysia Mesdaq Index added 8.01 points, or 0.24 per cent, to 3,375.45 level.

Following are the readings of some of the KLCI’s technical indicators:

Moving Averages: The KLCI had since stayed above its 10-, 20-, 30-, and 50-day moving averages. It stayed above its 100- and 200-day moving averages.

Momentum Index: Its short-term momentum index had since stay above the support of its neutral reference line.

On Balance Volume: Its short-term OBV trend stayed above the support of its 10-day exponential moving averages.

Relative Strength Index: Its 14-day RSI stood at the 55.50 per cent level yesterday.

Outlook

The KLCI’s brief technical pullback hit its intra-week low of 873.46 on Tuesday, staging a successful re-test of this column’s envisaged support zone (847 to 881 levels). Subsequent technical rebounds on Thursday and yesterday sent the KLCI to close at the day’s high of 896.64 yesterday, moving into the confines of this column’s envisaged resistance zone (887 to 921 levels).

Chartwise, the KLCI staged a technical breakout of its immediate downside support (See KLCI’s weekly chart — A1:A2). It continued to stay above its resistance-turned — support trendline (A7:A8). The KLCI’s daily trend bounced off its recently established uptrend (See daily chart — B5:B6) yesterday.

It continued to stay above its resistance-turned-support trendline (B1:B2). The KLCI’s weekly fast MACD (moving average convergence/divergence) continued to stay above the support of its weekly slow MACD at the market close on yesterday. Its daily and monthly fast MACDs continued to stay below their respective slow MACDs.

The KLCI’s 14-day RSI stayed at 55.50 per cent level yesterday. Its 14-week and 14-month RSI stayed at 39.79 and 32.37 per cent levels respectively. Following the technical breakout of its recent high of 887.27 on January 29, the KLCI is poised to bridge its gap of 3.13 points (907.15— 910.28). Once this gap is filled, the KLCI is likely to stage a re-challenge of its previous resistance high of 936.63.

The KLCI’s technical indicators are shaping nicely in the sense that a sustained technical rebound is in the offing. Once the KLCI’s daily MACD turns positive it will rebound in sync with its weekly MACD into a sustained technical rebound. Next week, the KLCI’s envisaged resistance zone hovers at the 899 to 933 levels while its immediate downside support is at 859 to 893.

Gamuda’s Lin Concurs With Nazir.

Gamuda Bhd managing director Datuk Lin Yun Ling said Malaysia’s ethnic quota system is impairing competition, the second business leader to call for change in as many days as the country seeks to avoid a recession.

“There needs to be a lot of competitiveness and competition instilled in our economy, not just the corporate sector,” Lin said at a seminar in Kuala Lumpur to discuss the financial crisis yesterday. “If everything is based on quotas, and merit is discarded, then it will be a long and slippery road down.” Gamuda is Malaysia’s second-biggest builder by market value.

Malays, about two thirds of Malaysia’s 27 million population, are given priority regarding homes, university places, commercial contracts, and company share issues. On Tuesday, Datuk Seri Nazir Razak, head of Bumiputra-Commerce Holdings Bhd, the Southeast Asian nation’s third-biggest bank, said the policy is impeding investment and growth amid a global recession.

The programme, introduced in 1971 to reduce poverty and address wealth imbalances among Malaysia’s ethnic groups, removes competition from everyday life and its implications haven’t been fully considered, Lin said in an interview after his speech. Lin said he supports the welfare goals of the system.

Malaysia’s main ethnic minorities are Chinese and Indian. An opposition alliance led by Datuk Seri Anwar Ibrahim made record inroads into the government’s majority at elections last March after pledging to scrap the race-based policy. Foreign companies in Malaysia must allocate 30% equity to Malays under the programme, known as the New Economic Policy.

Article from The Edge Daily.com

Genting Bhd's Share Price Could Finally Find A Bottom Soon ?

Genting Bhd’s share price could finally find a bottom soon, given that the stock has fallen by 60% from its high, said Macquarie Research. “Consensus EPS (earnings per share) estimates for 2009 have been slashed by a third (from RM1.8 billion to RM1.3 billion) and are now close to our forecast. We believe further downside is capped at 10%,” it said in a note on Monday. Macquarie Research is 15% below consensus for 2009 earnings.

Genting fell four sen to RM3.64 yesterday with nearly 3.3 million shares done. Reiterating an outperform on Genting, Macquarie Research said most of the risks had been factored in and at its target price of RM6.50 for the stock, the implied adjusted target price earnings ratio (PER) was 12 times FY10E.

“Stripping out loss-making GIL (Genting International plc), Genting’s underlying PER is 5.2 times FY10E and EV/Ebitda is 1.2 times. “Our RNAV-based target price of RM6.50 has further upside from at least three sources: new production or transactions at the oil and gas division, higher revenue risk in Singapore, and revenue surprises at the Malaysian leisure division.

“Additionally, Genting could receive a boost as we expect its KLCI weight to rise from 2.9% to 4% on July 6 (on the potential KLCI index changes),” said the research house. Macquarie Research said Sentosa would drive the stock price this year as the market would focus increasingly on the potential growth that Sentosa would deliver once it opened in the first quarter of 2010.

“We see Sentosa as the key driver of EPS growth in 2010–12, helping to potentially double Genting’s earnings over the next three years. This is even after accounting for current economic conditions in Singapore,” it added. “Fourth quarter 2008 results are likely to be robust, although earnings may be cut on lower CPO price and GDP assumptions.

“Beyond that, the tripling of VIP hotel room capacity, the first Tangguh LNG cargo in May 2009 potentially triggering a sale/revaluation and the Sentosa opening in the first quarter 2010 should drive the stock,” the research house said. Macquarie Research said the largest part of Genting’s value was derived from its gaming operations, with Resorts World Bhd contributing 43% and GIL a further 23% of total revised net asset value (RNAV).

“However, the oil and gas and power divisions are not a small part of the value, so any unlocking of value at these divisions would suggest a rerating of Genting’s price closer to its full RNAV,” it said.

Article from The Edge Daily.com

CIMB Research Lowers Rating On Banking Sector

CIMB (1023) Research has cut its rating on the local banking sector to "underweight" yesterday on lower expectations of loan growth and gross non-performing loan (NPL) ratios for the industry this year.

The cut was in view of the worsening economic situation and rise in local retrenchments. The research house now expects the banking industry to show loan growth of one to two per cent in 2009, from its previous forecast of a 3 to 4 per cent growth. It also raised its gross NPL ratio expectation to 7 per cent from 6 per cent previously.

"We downgraded the sector from 'neutral' to 'underweight' on the de-rating catalysts of slower loan growth, higher credit costs, weak investment banking income, lower-than-expected overseas contributions, and lower dividend payments," it said in a report yesterday. Its net earnings downgrades for banks ranged from about 2 per cent for Public Bank Bhd to between 16 per cent and 20 per cent for EON Capital Bhd.

CIMB now has an "outperform" call on just two banking stocks, namely Public Bank for its defensive qualities, and RHB Capital for benefits from its transformation programme.Its target prices for the two are RM11.10 and RM4.74, respectively. Meanwhile, AmResearch said yesterday it was keeping its "underweight" call on the banking sector as it believes the stocks will underperform the Kuala Lumpur Composite Index over the next six months, at least.

Investors will shy away from the sector due to concerns over the banks' earnings outlook, it said in a note to clients. It has projected the sector's earnings growth to contract by 6 per cent this year after an estimated growth of 6 per cent last year. The research house has a "buy" call only on Public Bank with a RM10.20 price target; and a "hold" on both Maybank and RHB Capital with price targets of RM5.50 and RM4.35, respectively.

Article from Business Times.com

A Bull In Hibernation For Crude Palm Oils.

The long-term trend of the crude palm oil market is still a bull, gone into hibernation for now.

OBSERVATIONS: Players who returned to the Kuala Lumpur crude palm oil futures market last Wednesday in a holiday-shortened trading week (last Monday and Tuesday were Chinese New Year public holidays) were confronted with a slew of bearish developments and news - the plunge in the bellwether US soyabean oil futures due in part to the strength of the US dollar; crude oil's relapse to near US$40 a barrel; and poor export sales estimates.

Many market participants scurried for cover, liquidating long (buy) positions. Selling snowballed after the decisive downside penetration of the psychological RM1,800 a tonne level. The actively-traded April 2009 contract was sent reeling to a low of RM1,739, before recovering some on short-covering and profit-taking ahead of the weekend. The contract closed last Friday at RM1,779 a tonne, down RM 51 or 2.79 per cent over the week.

Players were particularly dismayed by the latest export sales estimates. Societe Generale de Surveillance' and Intertek Agri Services' January 1-25 palm oil estimates were on average lower by some 360,000 tonnes or 27 per cent compared to that for the similar period in December last year.

Industry concern is that the resumption of the downtrend in export sales will see stocks piling up again. End-December 2008 stocks were still a deadweight 1,994,681 tonnes, despite the record high 1.61 million tonnes of export sales in that month.

Conclusion

What last week's breakdown below the psychological RM1,800 has done is turn this market into a short-term bear. And because the short-term trend is now a bear, and discretion being the better part of valour, market players would be well-advised to initiate short (sell) contracts but only at technical overbought positions below the immediate overhead resistance level, presently pitched at RM1,830. But the long-term trend of this market is still a bull, gone into hibernation for now.

Article from Business Times.com

Technical Speaking S.N.Lock 01-02-2009

Next week, the Kuala Lumpur Composite Index is likely to be range-bound with consolidation towards the second half of the week.

SHARE prices on Bursa Malaysia rebounded in step with the technical rebounds on regional stock markets over the last three trading days. The Kuala Lumpur Composite Index (KLCI) continued to stay below its critical support of level of 900 when it closed at 884.45 points yesterday. The KLCI opened marginally higher at 874.02 points before rebounding to close at the day's high of 879.63 on Wednesday, giving a day-on-day gain of 6.94 points, or 0.80 per cent.

Share prices on Bursa Malaysia maintained their technical composure on Thursday. The KLCI closed at 883.16 points, giving a day-on-day gain of 3.53 points, or 0.40 per cent. The KLCI consolidated for the major part of yesterday before edging out a marginal gain in a late-hour rebound. The KLCI closed off its day's low at 884.45 points, giving a day-on-day gain of 1.29 points, or 0.15 per cent.

The KLCI closed marginally higher at 884.45 points yesterday, giving a week-on-week gain of 11.76 points, or 1.35 per cent. The FTSE Bursa Malaysia Second Board Index gained 11.06 points, or 0.28 per cent, to 3,938.62 level while the FTSE Bursa Malaysia Mesdaq Index added 5.76 points, or 0.17 per cent, to 3,367.44 level.

Following are the readings of some of its technical indicators:

Moving Averages: The KLCI had since stayed below its 20-, 30-, 100- and 200-day moving averages. It stayed above its 10- and 50-day moving averages.

Momentum Index: Its short-term momentum index continued to stay below the support of its neutral reference line.

On Balance Volume: Its short-term OBV trend stayed above the support of its 10-day exponential moving averages.

Relative Strength Index: Its 14-day RSI stood at the 48.34 per cent level yesterday.

Outlook

The KLCI's brief follow-through rebound hit its intra-week high of 887.27 on Thursday, encountering resistance at this column's envisaged resistance zone (876 to 910 levels).

Chartwise, the KLCI continued to stay below its immediate downside support (See KLCI's weekly chart - A1:A2). It continued to stay above its resistance-turned-support trendline (A7:A8).

The KLCI's daily trend staged a re-test of its immediate downside support (See KLCI's daily chart - B3:B4) over the last three trading days. It stayed above its recently established uptrend (B5:B6).

The KLCI's weekly fast MACD (moving average convergence/divergence) continued to stay above the support of its weekly slow MACD at the market close on Friday. Its daily and monthly fast MACDs continued to stay below their respective slow MACDs.

The KLCI's 14-day RSI stayed at 48.34 per cent level yesterday. Its 14-week and 14-month RSI stayed at 37.23 and 30.95 per cent levels respectively. The KLCI managed to maintain its technical composure over the last three trading days despite the mixed performances on Wall Street and regional stock markets.

Taking its market breadth as a gauge of its future market direction, the KLCI is likely to trend in its range-bound activities. It will unfold its consolidations towards the second half of the week. Next week, the KLCI's envisaged resistance zone hovers at the 887 to 921 levels while its immediate downside support is at the 847 to 881 levels.

Technical Speaking by S.N.Look