Monday, August 10

Cashing in for the Lunar Year

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KUCHING: For the past decade, the FBM KLCI has the tendency to reach its peak in December or January before suffering from profit taking before Chinese New Year (CNY) as investors cash out from the stock market ahead of the Lunar Year.

This year is no different as there was a rebound rally to 1,803.17 points on Tuesday before falling 1.2 per cent to 1,782.18 points which indicates that the pre-CNY profit taking has already begun, observed the research arm of JF Apex Securities Bhd (JF Apex) in a recent report.

It highlighted that the FBM KLCI rises every year before CNY. It further explained, the market tends to ride on the positive momentum generated from year-end window dressing and ‘Santa rally’ in December.

“Throughout the past 15 years, the KLCI has been positive with an average gain of 4.8 per cent from January until its peak before CNY.

“In year 2000, the pre-CNY rally saw the KLCI surged 17.9 per cent while in 2007, the index rose 15.1 per cent,” it said.

However, it pointed out, for the past 10 years, as CNY approaches, a sell-down have occurred with an average decline of 2.2 per cent.

“In 2008, pre-CNY sell-down saw the index slump 6.6 per cent while in 2009, the index dropped 5.9 per cent on profit taking.”

It noted that there could be different reasons for the repeated trend. However, even during several bullish years, the sell-down came before CNY, JF Apex commented.

“In years 2002, 2004 and 2006, the KLCI was rallying but suffered profit takings several weeks ahead of CNY,” it added.

“The exception to the trend in 2001 was due to the KLCI’s rebound in January 2001, forming a reversal from the market crash that was sparked by the burst of the dot com bubble in 2000.

“In 2007, the bullish KLCI was in the midst of a two year-rally that went all the way to a high of 1,516 points in January 2008. While year 2012 was a flat year for the index,” the research arm said.

For this year, JF Apex said the pre-CNY profit taking may have already started. It explained, in the second half of last year, the FBM KLCI declined from its all-time high of 1,892.65 in July to a two-year low of 1,673.94 last month.

Over a medium to long term outlook, JF Apex said that it is cautious on the FBM KLCI performance as it still treads below our 200-day moving average of 1,830 points.

“Fundamentally, the index is currently trading above our 2015 year-end target of 1,720 points (which is pegged at target price earning ratio of 15.5-folds 2015 price earnings, implying 0.25 standard deviation above mean with market earnings per share growth of 5.3 per cent),” it commented.