Market Outlook as at 01 Sept 2009

Investment Theme For 2009
*** UNCERTAIN ***
1. Privatization And M&As Deals
2. A Stronger Ringgit Policy
3. Implementation Of the Ninth Malaysia Plan
4. Asset Reflation Theme
5. Iskander Development Region (IDR) In South Johor
6. Eastern Corridor Development Programme (Petronas-Led)
7. Northern Corridor Economic Region
8. Sarawak Region Corridor
9. The Sabah Development Corridor
10. Sarawak Corridor of Renewable Energy (Score)
11. RM40 Billion Public Transport Expenditure
12. The Asia Petroleum Hub In Johor
13. The Solid Waste Management Play
14. Flow of OPEC Petrodollars
15. The Trans-Peninsula Pipe Project
*** UNCERTAIN ***

16. Water & Water-Related Play
17. A U-, V-, W- Or L-Shaped Global Economic Recovery
18. Fiscal & Monetary Pump-Priming & Normalization Of Corporate Earnings
19. The Economic Stabilization Plan & Mini Budget
20. Interest Rate Cycle (Speculating End Of Easing Cycle As Economy Recover)
21. Decoupling – Emerging Economies Is Disconnected From Developed Countries (Uncertain)
22. Liberalization Of The Services/Financial Sector
23. The Malaysian Government’s Reform “Train”
24. GLCs Revamp
25. The ‘Third’ Link Bridge (Eastern Johor) To Singapore (Uncertain)
26. A ‘Third Stimulus’ Package (Uncertain)

Watch List In The Coming Week
2010 Budget Announcement;

Market Commentaries
On a cautious note, even as the global economic outlook is increasingly rosier, the next challenge is to sustain the recovery.

Sustaining the recovery will require some rebalancing acts, in that the global economy should refocus towards more US exports and more Asian imports (a reverse from the present scenario). The rationale is that the crisis has left some “deep scars” that will affect both supply and demand in the global economy for many years to come.

Given that the current global economic (Aug 2009) rebound is supported mainly by massive fiscal stimulus measures, the concern is that the rebound may not be sustained once the allocated spending is exhausted. Most economists see the factors driving the current economic rebound as temporary in nature.

So, the main call is for Asia to create its own demand to reduce its reliance on exports for growth, while at the same time, generate new opportunities for international trade.

Asian governments, including that of Malaysia, have announced earlier that they planned to create new economic models to ensure the future sustainability of their economies. Malaysia is expected to announce the outline of its new economic model towards the end of the year (2009).

Meanwhile, some economists are also concerned about the growing fiscal deficits faced by most governments as a result of their massive stimulus packages. Higher taxation – unpopular, but perhaps necessary – as the solution.

Although a recovery is underway, a sustained recovery will likely be slow and a follow-through recovery is needed. A stronger global recovery in 2011 with 2010 merely a getting-out-of recession phase.

2010 would a be “year of global interest rates hike” with India and Indonesia to be the first few to make a move. There will be negative forces pushing the inflation higher next year (2010). Loose monetary policies, a revival in commodity prices and a higher budget deficit would push inflation higher.

If there is any rate action, it will be in baby steps and probably in the second half of 2010. It did not see a resurgence in high inflation now (Aug 2009).

High savings and foreign reserves exceeding US$4.3 trillion had strengthened Asian economies’ external position” and that “the region is poised to ride or even lead the next economic boom.”
There was a need to reinvent Asia and make a shift from external demand to domestic demand.

Asia had escaped the “bullet” of recession and that higher interest rates would not have a big impact on its recovery. Moving from the current 2% to 3% will not impact the market so much.

The best time to return to the market was three months ago (April – May 2009), but the risk of getting a double-dip was a lot lower now (Aug 2009) than three to four months ago. It is possible to return to the 2007 level but don’t know by when. Some companies might recover and some might not. Some have even surpassed their 2007 peak. It is unlikely everyone will recover?. There will be some winners and losers.

It also encouraged investors to continue investing in equities on expectation of a second round of recovery. The market moves ahead of the real economy by six to nine months. The recent (July – Aug 2009) positive market performance has moved in anticipation of the first round recovery. From here (Aug 2009), a positive uptrend that investors can still partake of in anticipation of the second leg of the recovery.

Technical Analysis
The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index were fast reaching the overbought territory. It flashed a short-term at the bottom on Aug 21 2009.

Elsewhere, the 14-day relative strength index drifted sideways to marginally higher the past week to settle at 58 points on Friday.

In stark contrast, the daily moving average convergence/divergence (MACD) histogram sustained the negative expansion against the daily signal line to stay bearish. It triggered a sell on Aug 12 2009.

Weekly indicators continued to deteriorate, with the weekly slow-stochastic momentum moving out of the bullish zones after issuing a sell a week ago, and the weekly MACD in danger of tripping below the weekly trigger line.

Bursa Malaysia appeared still in consolidation phase although the principal index was able to chalk up modest gains the past week.

As all of us can see, daily volume has been shrinking over the past several days. While the bulls take a longer-than-expected breather and the market turning sluggish, pessimistic investors moved to the sidelines adopting the “wait-and-see” on suspicions the market may be in distribution mode after a strong run up.

Based on the daily chart, the prevailing trend remains bullish and it looks like the FBM KLCI is in the midst of constructing a concrete platform for the next rally.

Perhaps, the reason why trading was dull and thin could be because many people were away on holidays during the school break, combined with the start of Ramadan.

Therefore, investors should not be overly worried but can consider accumulating more on dips.

Technically, the daily and weekly MACDs still are pointing at consolidation, probably sideways pattern until a bullish breakout is detected.

Support floor is maintained at the 1,150 points, followed by the 1,140-1,142 points band.

To the upside, the key index will encounter significant resistance at the recent peak of 1,196.46 and the next, at the 1,200 points psychological mark, of which a successful penetration will signal a resumption of the mending process.

Undermining Factors
1. Blowup In US Subprime Loans & Shaky Financial Assets Associated With Them And As A Result Of Re-pricing Or Revaluation Of Risk Contributed To A Squeeze In The US Credit Markets (Stabilizing);
2. Malaysia Political Uncertainty;
3. Fear, Uncertainties, Global Liquidity Crunch & Economic Fallout (Stabilizing);
4. Volatile Foreign Exchange Market (Signs Of Volatility Return);
5. A Slowdown In Global Economy (Rate Of Decline Has Started To Moderate Since March 2009);
6. Commodities Prices (Strengthening);
7. A Global Deflationary Threat -> Hints Of Recovery – Fear Of Inflation
8. Threats Of High Commodities Prices And US Dollar Crisis

Unpredictable Risks/Surprises
1. Terrorist Attack –
2. Oil Supply Disruptions –
3. A Pandemic Disease – Swine Flu (Spreads Worsening)
4. Financial Shocks – Unwinding of Yen/Dollar Carry-Trade Funds, China’s Stock Market Bubble, Global Liquidity Crunch Resulting From Blowup In US Subprime Loans And Shaky Financial Assets Associated With Them & Falling Dollar;
5. Major Social And Geopolitical Upheaval –