KLCI ... Bullish Breakout 1790, Bearish Breakout 1774

The KLCI remained bearish below the short term 30 day MA. However the index had managed to support above the 1780 point support level despite falling below this a few times in the past week.

Momentum Oscillators remained below their mid levels as the index was directionless, which indicates that the bears are still in the Bollinger Bands indicator are still expanding with the index trading near the bottom band. However the RSI and Momentum Oscillator indicators moved sideways and this indicates a weak bearish momentum. The index has to break above the immediate resistance level 1790 points to turn bullish.

There is a high chance for the index to rebound above the immediate resistance level. If the index can break above 1790 points, then we may see a rally to the next resistance level at 1820 points. Furthermore, the local market is oversold compared with the regional markets and hence a rebound is likely. However, the index may still weighted down by falling oil prices and a weak ringgit.

A breakout below of the immediate support level at 1774 points could point the index lower, and the next support level can only be found at 1680 points.

Menwhile it was reported that foreign holdings of local stocks have been reduced substantially, as a weaker ringgit and falling crude oil prices spurred a net outflow of RM4.57bil year-to-date (13 March 2015). To compare, the entire net outflow from the local bourse in 2014 was RM6.93bil.

Foreign investors dumped RM1.16bil worth of stocks (09 – 13 March 2015). Observers do not expect the heavy foreign selling last week to persist. It is believed the worst phase of foreign fund attrition is in the past. Due to shrinking foreign participation, which fell to less than RM1bil on 13 March 2015, expect foreign selldown to ebb away.

On the other hand, local funds supported the equity market last week and bought up RM1.13bil worth of shares. To-date (13 March 2015), local institutions have bought RM4.85bil from the stock market compared with RM8.18bil in 2014.

Foreign selling of Malaysian equities should not be too much of a concern as foreign investors only hold about 20% of local stocks compared with 43% in Malaysian Government Securities (MGS). The worry is more on Malaysians taking money out of Malaysia. However, the high saving rate and young population would continue to support the country’s growth fundamentally.

Easing monetary policy appeared to be a regional trend and that Bank Negara might take stimulating measures should loan growth decline further.