Feb 20, 2017

Malaysia: Technical, Currency and Feng Shui Outlook 2017

Technical, Currency and Feng Shui outlook for 2017
■ Three speakers presented at our 2017 Technical, Currency and Feng Shui Day
■ Technical charts point to a better 2H for the KLCI and ringgit
■ Fengshui analysis revealed that the market could see setbacks in Dec 17- Jan 18
■ Cycle analysis suggests that the next major low in KLCI could be in mid-2019
■ We maintain our end-2017 KLCI target of 1,820 pts and top picks

Technical, currency and fengshui outlook for 2017
We hosted a half-day conference yesterday, featuring (1) Dr Suresh Ramanathan, an expert on currency; (2) Master Bo Xu, a consultant on fengshui; and (3) Nigel Foo, our very own regional technical chartist. The technical and fengshui outlook points to a volatile equity and currency markets in 2017.

FBM KLCI Monthly Chart:fbm klci monthly chart
Technical charts point to a better second half for KLCI
Our technical analysis view is that the KLCI is currently on a rebound rather than in a bullish phase. We expect the market to weaken and potentially bottom sometime in 3Q before rebounding in late 2017. We are also looking at the ringgit appreciating against the US$ in 2H17 and this could help the KLCI kickstart a sustainable medium-term uptrend for the local bourse in the later part of the year.

Food for thought: 10.5-year cycle
Since the KLCI's inception, there appear to be a 10.5-year or 126-month cycle for the local bourse, with the KLCI finding a significant low close to the end of each of this major cycle (+/– 3 months). Basically, in the first half of the cycle, the wind seems to be behind the bull’s sail while the second half tends to favour the bears. The 1,896 high for the KLCI in Jun 2014 was 4 months after the mid-point of the current 126-month cycle. If this cycle continues to play out, then the next major low for the KLCI can be expected in mid-2019.

Currency outlook
Dr Suresh Ramanathan, a market economist with stints in Bank Negara Malaysia (BNM) and global financial institutions, presented his view on the currency markets. He believes the US$ still has room to appreciate against major and EM currencies, including the Malaysian ringgit. He thinks sustained ringgit weakness poses a risk to the real and financial economy, and proposed a three-pronged strategy to improve FX market liquidity and transparency: 1) Ringgit Continuous Linked Settlement (RCLS), a centralised FX clearing and settlement platform, 2) US$ Enhancement Note to improve onshore US$ liquidity, and 3) an FX stabilisation fund to realign the ringgit vs. regional currencies during bouts of excessive depreciation.

Fengshui master positive on long-term investment
Fengshui consultant Master Bo Xu said this year, being the year of the “Fire Rooster”, should be good for long-term investors with a 3- to 5-year investment horizon. Wood element businesses such as furniture, pulp and paper, textile, timber and education should flourish while fire element businesses (oil & gas, and restaurant) will not do so well, he said. Stock market wise, a good month for the market would be in May (4 th lunar month) while negative months would be Dec 17 and Jan 18 (lunar month 10 th and 11 th ).

Technical view in line with our fundamental analysis
The technical views on the KLCI and ringgit were in line with our fundamental view that the KLCI should see a stronger 2H17. However, the fengshui analysis points to a lower end for equity market in 2017. We maintain our end-2017 KLCI target of 1,820 pts.

source: CIMB Research – 16/2/2017