KUCHING: With the rebound seen in stocks movements last week, the market should see an uptrend this week, following a reached agreement among the Group of Seven (G7) countries towards calming the global financial markets.
According to Kaladher Govindan, head of research at TA Securities Holdings Bhd, investors’ sentiment should remain positive on the back of the good improvement on US stocks and hopes that Japan might yet contain the nuclear crisis to a certain degree.
“This is further strengthened by the United Nations (UN) Security Council’s decision to intervene in Libya. Thus, the 1,474 support level on FBM KLCI (FTSE Bursa Malaysia Kuala Lumpur Composite Index) acts as a crucial double-bottom support holding off further downside risk towards 1,450, the 38.2 per cent Fibonacci Retracement (FR) of 1,243 to 1,576; followed by the major 200-day moving average support at 1,442.
“Stronger retracement supports are at 1,410 (50 per cent FR) and 1,371 (61.8 per cent FR). Immediate resistance is at 1,500; then next at 1,513, the 61.8 per cent FR of 1,474 to 1,576 – closely matching the 100-day moving average at 1,515; followed by 1,525, the 50 per cent FR and then the 50-day moving average level of 1,528.”
Consensus put a likelihood for FBM KLCI to move within the 1,500 and 1,520 range given that investors had gradually begun to accumulate bargain stocks as massive selling had subdued and negative newsflow had softened.
With the spotlight being largely focused on economic repercussions from Japan’s earthquake-tsunami disaster, Govindan believed it would be a a short-term sentiment dampener.
“The earthquake was the largest catastrophe to hit Japan, and one of the largest in the world since seismological record-keeping began. However, the market will realise eventually that new resources will be needed to rebuild destroyed cities and homes, replenishing lost power reserves, increasing food and medical supply, as well as ensuring clean water supply.”
Drawing example from the Kobe earthquake in January 1995, Govindan noted that the KLCI fell 8.02 points – or 0.9 per cent – a day after the incident and another 48 points (six per cent) in the following week before recovering within the first and three months of the tragedy.
“Back in 1995, key economic data for Japan did point out to sustainable growth momentum. From an economic standpoint, the two regions hardest hit in the Kobe quake accounted for 12.4 per cent of GDP (gross domestic product), according to data from Bank of America-Merrill Lynch. Based on non-seasonally adjusted figures, full year 1995 GDP grew by 1.9 per cent against 1994’s 0.9 per cent. Similarly, Japan’s exports and imports had accelerated by 2.6 per cent and 12.3 per cent, respectively in the same year.
“Based on this, the demand for soft and hard commodities could rise once the dust settles; benefitting plantation, oil and gas, steel as well as timber sectors in Malaysia,” siad the head researcher.
For the week ended March 18, FBM KLCI exhibited a rebound of 8.27 points to 1,503.89 from the previous week’s 1,495.62. Weekly volume fell to 5.097 billion shares valued at RM7.738 billion for the week under review, against 5.5 billion shares valued at RM8.50 billion a week before.