Dec 15, 2009

KLSE stocks ahead : liquidate advised

  • Banking stocks looking a bit high

  • FBM KLCI may fall below 1,200 pt

  • FBM KLCI may have peaked at 1,288.42 pt

  • Lee urged investors to liquidate their stocks in view of the “steep correction” round the corner

14 Dec: Defensive stocks may not be spared the brunt of an expected “steep correction” in the market ahead, said a technical analyst.

Maybank Investment Bank’s head of retail research, equity markets, Lee Cheng Hooi, who last Friday advised investors to liquidate their stocks, said some key FBM KL Composite Index stock constituents may lead declines in the market.

Among stocks which Lee expects will undergo a correction are YTL CORPORATION BHD, GENTING BHD, BAT Malaysia Bhd and PETRONAS DAGANGAN BHD.

“Despite these stocks being defensive in nature, they don’t seem to be in great shape,” he told The Edge Financial Daily pursuant to his chart analysis of these stocks.

Lee also said banking stocks were “looking a bit high” and he did not rule out a further correction in the sector. The finance sector constitutes about 35.7% weightage on the FBM KLCI, followed by PLANTATIONs.

“The market is high, and we will likely see a snowball sell effect,” he said, adding that the local benchmark index may well fall below 1,200 since its run-up a few months ago.

In a report last Friday, Lee urged investors to liquidate their stocks in view of the “steep correction” round the corner, as the FBM KLCI hovered at a key neckline support level of the head and shoulders chart pattern.

He said the FBM KLCI may have peaked at 1,288.42 on Nov 17, 2009, and “urged investors to liquidate all their stocks on any and every rally”. He said all the FBM KLCI’s indicators (CCI, DMI, MACD, Oscillator and Stochastic) turned negative recently.

“There could be a potential steep correction very soon. Tactically, investors should liquidate all their stocks. If the FBM KLCI breaks below 1,255, the market would head down towards 1,207 (the measurement target of the dreaded head and shoulder pattern),” he said.

The head and shoulders pattern is a reversal chart pattern after a long upward trend and is recognised by technical analysts to forecast likely future trends in stock markets.

“Large local funds are distributing their massive positions, whilst maintaining the illusion that all is well with the FBM KLCI and FBM 100,” he added in the report.

Lee said weakness in most blue-chip components and mid-capped stocks would cause further market downside in the medium term, and the FBM KLCI was holding above the 50-day simple moving average for now. Lee said any US dollar’s rise would be among the factors giving downward pressure to equity markets.

FBM KLCI closed almost flat last Friday at 1,260 points with a high degree of uncertainty throughout the trading day. The benchmark index has risen about 50% from its low of 835.17 about a year ago.

There was now risk aversion to emerging markets after Dubai delayed its debt repayments, Lee further told The Edge Financial Daily, advising investors to hold cash at this point in time.

He likened the state of the world economy now to “a house of cards”. “Dubai has started it (the correction), and these debt defaults will cause jitters in the world economy,” Lee said, referring to the latest news of debt repayment concerns in Spain and Greece.

Dubai is delaying its debt repayment, putting at risk the US$59 billion (RM200 billion) debt held by government controlled Dubai World and its property arm and an upmarket builder Nakheel.

Fitch Ratings last Tuesday announced that Latvia and Lithuania’s credit ratings were under pressure from the sharp deterioration in public finances, according to a Bloomberg report.

The same agency also cut its rating on Greek government bonds one step lower to BBB+, causing a heavy selloff on Greece’s government bond markets on fears over debt default.

Reports also said Standard and Poor’s shifted its outlook for Spain’s debt from stable to negative. The agency further said “reducing Spain’s sizeable fiscal and economic imbalances required strong policy actions, which have not yet materialised”.

Heavy bond selloffs have also been reported in countries like Portugal and Ireland as investors feared credit ratings for these countries may be downgraded.
Source theedge