Monday, February 16, 2009

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

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