Market respite, crude oil price finds near-term support

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Crude oil price is likely to undergo a period of consolidation going forward until year-end and as such, selling pressure on FBM KLCI could equally subside, analysts say. — Bloomberg photo

KUCHING: Crude oil price is likely to undergo a period of consolidation going forward until year-end and as such, selling pressure on the FTSE Bursa Malaysia KLCI (FBM KLCI) could equally subside, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said in a recent strategy report.

“As observed in prior months since July this year, the price of crude oil generally weakened in the first half while buying support mostly appeared in the second half of each month.

“This distinct price behaviour (in the futures market) is arguably due to the prevalence of selling activities in the earlier half and short covering in the latter half of the month.

“Basing on the crude oil trading pattern, there is a fair chance that crude oil price may undergo a period of consolidation going forward until the year is out.

“Therefore, we can expect the selling pressure on FBM KLCI to equally subside. Thus we may see an end, or at least a respite, to the equity market drubbing of the past few weeks,” the research arm viewed.

On the market’s performance, MIDF Research recapped, the FBM KLCI broke decisively beneath the 1,800 points level at the start of December.

“The breakdown was in reaction to the drop in international benchmark Brent crude oil prices below the critical US$70 per barrel which was triggered by an OPEC decision in a late November meeting to keep its production level unchanged.

“Henceforth, investors’ sentiment immediately turned south as further, almost incessant, decline in crude oil prices were met with equally forceful selling bouts in the local equity market,” it explained.

So far this month, MIDF Research noted the top three outperformers among the market heavyweights were Petronas Dagangan Bhd (Petronas Dagangan), YTL Corporation Bhd (YTL Corp), and KLCC Property Holdings Bhd (KLCC Property) while the top three underperformers were Felda Global Ventures Holdings Bhd (FGV), SapuraKencana Petroleum Bhd (SapuraKencana), and Astro Malaysia Holdings Bhd (Astro).

It explained, “Petronas Dagangan found good buying interest so far this month. But the buying support arrived pursuant to a significant price correction in prior month as a consequence of weaker than expected third quarter earnings.

“YTL Corp which indirectly owns Wessex Water in the UK may see translation gains on its pound sterling-based income due to the weakening ringgit. Meanwhile, KLCC Property attracted the interest of anxious investors as it owns a portfolio of high quality, good tenanted properties which almost guarantee a secure income stream.”

As for the top three underperformers, MIDF Research said, FGV experience continued heavy selling as the falling crude oil exerted downward pressure on the prices of crude palm oil and other commodities.

Furthermore, it pointed out that weak global crude oil price coupled with Petroliam Nasional Bhd’s (Petronas) capital expenditure (capex) cut have resulted in a widespread valuation de-rating among the local oil and gas companies.

“Hence despite its massive orderbook, SapuraKencana saw huge price decline as investors aggressively cut its previously high relative valuation,” it added.

Nevertheless, the research house believed that the market overreacted in this instance as its current valuation stands below the relative criteria.

Aside from that, it noted Astro Malaysia had announced a slightly weaker than expected quarterly net profit amid slowing net adds for its pay-tv services. However, the prevailing jittery market sentiment was much less tolerable to even the slightest unfavourable news, it said.