KUCHING: With the expected buying interest shifting to blue chips on improved earnings outlook, further upside could be seen on the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) this week.
TA Securities Holdings Bhd’s (TA Securities) head of research Kaladher Govindan said late last week, blue chips extended strong gains aided by a strong US jobs report slated for the improvement in the economic growth outlook.
“However, lower liners fell back on profit-taking interest.
“As the local market expectedly fell into profit-taking mode and consolidate gains ahead of the weekend, buying interest had gone towards blue chips on the back of improved earnings outlook; hence promoting further upside for the index this week,” he reiterated.
For the week ended April 1, FBM KLCI finished 39.83 points – or 2.62 per cent – higher to settle at 1,555.38 against 1,515.55 posted on the previous Friday. Weekly volume shot up to 8.841 billion shares valued at RM11.383 billion, from the 6.125 billion shares valued at RM8.214 billion previously.
Consensus put a year-end target for the local index to reach between the 1,580 and 1,640 levels.
“Following the breakout above 1,537, the 38.2 per cent Fibonacci Retracement (FR) of 1,474 to 1,576, the next immediate hurdle would be at 1,552 – the 23.6 per cent FR. Resistance above this level would be at 1,561; then 1,568, followed by the 1,576 high of January 6 this year.
“Immediate support is revised upwards to 1,537; followed by 1,525, and then 1,513 – the 61.8 per cent FR,” Govindan explained.
Meanwhile, the head researcher viewed that the current currency environment should prove positive for companies with high domestic sales and high US dollar cost content or borrowings such as Amway Malaysia and Malaysia Airlines. On the other hand, he also agreed that such scenario would hurt exporters, especially those without a natural hedge through US dollar-based purchases like glove companies.
“Thankfully, the end of wintering season in Cambodia and Vietnam, as well as floods in Thailand and lower demand from tyre manufacturers in tsunami-struck Japan have the tendency to lower latex prices in the near future.
“Thus, it could be a good opportunity to accumulate glove players like Supermax Corp Bhd, whom we put a ‘buy’ call with a target price of RM6.30. There is no doubt that foreign capital inflows on expectation of a stronger currency will be an important driver for the FBM KLCI component stocks this year,” said Govindan. Notably also, anticipation of positive announcements in the upcoming Invest Malaysia 2011 this month should keep the broader market “alive and kicking”, as Govindan put it.
“A resounding victory for Barisan Nasional in the upcoming Sarawak State Elections is another ‘wild card’ that could bolster the market in anticipation of a general election — possibly in the second half of this year.
“Investors should not discount the possibilities of more merger-and-acquisition activities and restructuring-related news from some well known Sarawak-based companies post-election — potentially including tie-ups with certain Peninsular-based companies,” added the head researcher.