Monday, September 13, 2010

Bursa Malaysia May Enter 'Golden Era'

Philippine and Malaysian stock markets may soon end 16 years of stagnation and enter a “golden era,” according to CLSA Asia-Pacific Markets technical analysts.

The Philippine Stock Exchange Index is testing its record high reached on Oct. 8, 2007, after fluctuating between support at 975 to 1,075 and resistance at 3,447 to 3,896 since 1993, CLSA analysts led by Laurence Balanco said.

The FTSE Bursa Malaysia KLCI Index is also poised for a breakout after it “drifted net-sideways” below the 1,332 to 1,524 range since 1994, the analysts wrote in a report.

The “secular bear markets” in the two Southeast Asian countries may be similar to ones in South Korea from 1989 to 2005, Indonesia from 1990 to 2004, India from 1992 to 2004, Singapore from 1994 to 2006, and the US from 1966 to 1982, according to CLSA. Since then, benchmark indexes in the five countries have rallied at least 51 per cent and posted gains of as much as 282 per cent, the analysts said.

“If the PSE index and the KLCI are to adhere to these common secular bear market patterns, then both markets are on the cusp of entering a new long-term bull market phase,” the analysts wrote.

A “conclusive” breakout above 3,896 could take the Philippine gauge to 6,752 “in the years to come,” according to the analysts. Still, they said the market may yet pause as it approaches the resistance zone and as the benchmark index completes a five-wave sequence from the October 2008 low.

The Philippine index lost 0.6 per cent to 3,723.45 at 11:14 am local time.

Cyclical Correction

“A partial retracement from the 3,447 to 3,896 resistance zone will mark the end of a 16-year secular bear market,” they wrote. “We would look at accumulating stocks during this cyclical correction.”

Resistance refers to the upper boundary of a trading range, where sell orders may be clustered, while support is where there may be buy orders. Elliott Wave Theory, created by US market analyst Ralph Elliott in 1938, concludes that market swings, or waves, follow a predictable, five-stage structure of three steps forward and two steps back.

In Malaysia, a breakout may suggest a long-term minimum target of 2,610 for the KLCI index, according to the analysts, who didn’t specify a time frame. The gauge was little changed at 1,433.68.

Still, an “extreme” reading for the gauge’s 14-day relative strength index may be a warning sign of a pullback in the near term, the analysts said. The KLCI’s RSI, tracking how rapidly prices advanced or declined, was at 77.6 today, higher than the 70-level seen by some analysts as a signal that prices are poised to fall. -- Bloomberg

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