FKLI/KLCI and FCPO technical Analysis update

The FKLI has seen a rebound as of late.  While nothing is set in stone, a few of the bombed out oil stocks are picking up, as well as the index.  Support seems reasonably good.  With the anticipated Eurozone QE program on the horizon, most equity markets seem to be picking up.

The trend line has adjusted downwards to the new support at the low set a few weeks ago.  At this point the market may or may not see new highs.  It's anyone's game.  But below 1730, the market will look weak.



FCPO looks reasonably strong if it stays above RM 2,297, but the uptrend is all but stalled for the current period given the last few down days.  Given the predominate downtrend over the last few years, the market probabilities lend towards the bearish side.

Property stocks hammered

I've been a bull on certain properties, but certainly not all. Here is Sunway and SP Setia. I don't necessarily recommend these companies as their property mix is weighted toward the high end.



If we should see Sunway and SP Setia start to stabilize, then counters like SPB will have a bit of the sector stigma lifted.

SPB develops housing with a much lower price point than its peers.


Be patient until the property sector as a whole stabilizes before buying select property counters.

Checking the EWMs once again

What we can gather from the EWMs and the market is most of the buying has been locally based. On the last 4 days, the market has opened higher while almost no buying has gone on during the US trading session.

Buying only occurring during Malaysian time

In fact, a lot of the US trading session has been about profit taking as indicated by the red lines.

US EWM traders have been selling down

Generally in a healthy market, we would want to see the international investors buy in through the EWMs as well as during the local hours. The selling makes me think the international investors have been early to the party and taking profits as local investors pile in the market.

The other possibility is that the international investors have been primarily out of the rally, but with the selling, it looks like they have taken part in the rally.

I'm not too encouraged by the technicals at this point.

Buying, but not from typical international investors

Overnight Malaysian ETFs didn't produce the same positive jump in the FBMKLCI today. If you would have told me that the Malysian Index would closed up 10 points today, based on the previous nights' investor appetite, it's not a bet I would have taken.

Some money managers seem to be committing more money towards Malaysia through local brokers. Perhaps some of the emerging market hedge funds are receiving new inflows.

Lackluster price action on the Malaysian ETF based in US

Subsidy plays still has legs, Fed's message about monetization

Plus highways' rally on earnings upgrades means that the subsidy play areas still have room to run or at least will stay resilient if the market pulls back. After looking at the price action and news of various subsidy plays, the subsidy theme still seems quite strong.

World markets have been selling down on the news that the Fed will not liquidate the assets acquired during the financial crisis. This would keep liquidity in the system at the current level.

The market would rather hear the Fed acquire more assets, unfortunately they put out mixed signals. The Fed indicated that they would not give new money and that it is basically in the government's hands to fiscally stimulate the economy. At the same time, they said they stand ready to help out when needed.

The market is looking for more direct monetary action. An individual has to look no further than the effect on the markets when the fed started acquiring mortgage assets in 2009. Anything less seems to be a disappointment.

Revisiting AHB holdings and Shell

Looking at Shell's loss, especially after talking positively on the stock, I have to go back and take a look at what went wrong. I read that Shell Refining does most of its business in Malaysia. It has a massive industrial cracker which refines the oil. It has no stake in the retail ops, though I suspect that the Shell retail operations get most of their supply from Shell Refining.

Herein lies the issue. Prices are controlled at the pump and Pemandu pays out the petrol subsidies there. Shell Refining I don't think will get as much revenue upside as say the retail ops which will see an immediate upside in revenues as subsidies get lifted. Gasoline demand is ineleastic so a small price increase won't decrease consumption much.

So perhaps Shell isn't a great play on the subsidy lifting scheme but they are generally a well run company. They still pay dividends and make steady money. At any rate, subsidy lifting is a non event for the company.

ABH. Now this is stock for you risk takers out there! After a second look at the company, they do have a large number of receivables and land which probably could be securitized in the event of a liquidity crunch. If businesses are spending, which they are judging by the growth of business loans, this company should reap a massive windfall.

Current ratio is over 1.37 from the latest report. The directors costs are ridiculously high though, taking up half a million. Their employee wages run at 2.3 million.

The company has options in the receivables. It has not securitized those items. Inventories are higher year over year which means if revenue picks up, the company has the ammo to capitalize on increased business demand.

But the premise for buying ABH remains the same. If you are a company looking to spend some money on capital expenditure, and you don't want to fork over half a million for state of the art equipment. You would spend a much smaller sum on office furniture that would make your workers more efficient, or fit more workers in a smaller space, therefore making your office space more efficient.

Quiet time

While we have had a combination of risk on and risk adverse trades, I'm still undecided on the direction. If one were to look at the overall strength in government bonds and Japanese Yen, I would be tipped in the bearish direction. Equities are hanging around at this level not giving up much ground either.

USD/JPY with yen strengthening and usd weakening

Bonds still resilient the last few days

Note the charts are in a 30 minute and day intervals top and bottom respectively.

Something tells me money mangers have put their money back in not wanting to miss the boat. But we all know the majority of money managers don't beat the market. Regardless of money being put to work by managers, the market will go where it wants to go.

The USD/JPY weakness is probably the most concerning event at the moment as the Japanese Yen reaching new highs does not inspire confidence for risk assets. If you are a trader that believes once the yen breaks to new highs against the dollar, it will put continued upward pressure, then this is the next target trade now that the EUR/USD has already quite handily breached the 1.30 mark.

Malaysian business services sector

I'm not too hot on the Malaysian business services yet. Loan growth in the area is quite anemic but if you would like to play the business recovery, stay away from anything that requires massive amounts of capital spending.

Businesses won't be induced to spend a lot yet, but they will be wanting to do some small capital expenditures on items that are of good value. Companies still need services and may be induced to spend as products need replacement. I did come across an office supplier AHB holdings but I'm concerned about potential cash problems. They did an SPA sale and lease back for some of their land and this should allay their finances for a while.

Last quarter's revenue did double from the previous year. So it has revenue momentum.

The outlook is good if the company can solve its current liquidity problems, but the stock could very well be worth zero if it has no money to pay its creditors. Overall, though the environment is lacking for business services companies in Malaysia.

End of the month

Today was a rather choppy day in the international markets. With the data out of US, I thought we'd be up past 1100. But you never know as we barely made it. GDP is backwards looking while ISM and consumer confidence are more forward.

People are too concerned with the technicals whether we finish above a certain number and not enough with how the market is doing overall. Today the bulls managed to pull something out of thin air. The macro numbers helped a bit but the bears are still strong. Three days in a row, I'm leaning towards the bear stance.

A couple of days may not make the market but we better be wary of whats going on. FBMKLCI still seems to be in a strong position given the market turmoil of the last few days. I'm not really all too joyous about the current situation, but props have to be given to the Malaysian market given the general weakness in international indexes.

Recap of this week's market action

Monday for the S&P was bearish: good macro data, closed down. Tuesday was also bearish: bad macro data, closed down. Bulls did try to rally in spite of data but were promptly shot down. In a bullish market, you want to see the bulls rally in spite of bad data and vice versa for a bearish market.

Bears: 2, Bulls: 0. Bears could push the market down more but we'll just have to see. Perhaps they are waiting for tomorrow's macro and Thursday's job numbers.

I'd be moving to the sidelines temporarily. Get in the more stable names.

The EWMs didn't look too great either. No longs were willing to step in. Foreign investors are definitely selling down. I'd be moving over the sidelines at least. Today the FBMKLCI did hold even despite the sell off. But don't look for local investors to buy when foreign investors sell out.

Berjaya Retail sounds like an interesting counter

Retail counters have certainly been lacking in Malaysia. We have Aeon and Parkson. Aeon lacks valuations at this level, although this part in the economic cycle would indicate increasing revenue for retailers.

Parkson has a lot of exposure to China. Depending on the situation, it could be a positive or negative: Positive if their stores in China do well, negative if they don't. The analogy is tongue in cheek, but that brings me to my next point. Invest in things you know and you'll get less surprises.

If you want exposure to retail, you would probably want it in a Berjaya Retail or a Suiwah. I do own shares in Suiwah just for disclosure purposes. We're in this patch of the economy where low end retail stores will most likely outperform. Seven-Eleven with low product prices compared to a Jusco or Parkson, stands to do well in this slow economy.

The Singer products are also not terribly expensive compared to many electronic products out there, so the brand fits in with catering to the low end consumer. Plus the 50% dividend payout isn't too bad either. This is a name I could look to get into.

Much ado about foreign investors

Chart of the day for the EWMs, the easiest way for a foreign investor to get exposure to the Malaysian markets.

Thinkorswim EWM charts

Foreign investors haven't been net buyers or sellers during the pullback from $12 to $11.7. In fact, they have more or less been even. Yes, I'm surprised the market didn't back down off $12, but that just means we have upward momentum until we reach a price point where sellers come back in.

I don't think we are reaching new highs for the year for the overall indices. Malaysia may reach $12.30 which would translate to roughly an additional 1-1.5% or 1360-1370. The risk/reward trade off for ewm shorts are becoming more prevalent at this level and into the 1360s.

Uncharted territory

The Malaysia FBMKLCI finds itself at uncharted territory but without the European and US markets with it.

What is disconcerting today is the high fliers of the FBMKLCI have not been leading the market higher. We are talking about an Axiata or a Public Bank. Public Bank came out with "stellar" earnings yet the market yawned.


We see Genting and MISC, one of the under-performers of the FBMKLCI finish as gainers.

Underneath, we see KFC, KPJ both having problems leading the market. KFC opened at 11.5 to finish at 11.1. KPJ also opened higher then closed lower.

Nestle, perhaps the most dramatic of the high-fliers closed strongly off the highs.



Then, you get an under performing stock like AMMB closing up .6%. While the US close on Friday showed a lot of strength, this is a new week and keeping things in perspective of where the FBMKLCI is in relation to the other indexes will be key. The FBMKLCI is trading at highs while other world indexes are not. Don't buy everything out there.

Subsidy Lifting plays

If you want to get in the subsidy reduction play, companies like Petronas daganan, Shell, PLUS, Petronas Gas, Tradewinds, Tenaga are all ways to play the subsidy lifting scheme. When subsidies get lifted, inventories that the companies hold are now worth a lot more at market value. Not only that, future revenue will come in higher, which in turn creates chances for higher profits.

Certain names like Petronas Gas, Plus pay more of a dividend while people with more stomach for risk would certainly want a Tenaga or Tradewinds. A Petronas Daganan or Shell would certainly be a middle ground.

Sugar shortage news is bullish for sugar refiner Tradewinds. The market didn't trade up on the news, though. When the government lifted the sugar subsidy greater than expected, Tradewinds started to take off.