Contrary to general expectations of a short-lived relief rally, Malaysian stocks continued their upward climb this week. The KLCI was up +1.5% (+17.35pts) from 1,141.75 to 1,159.10. The prolonged rally was generally sustained after easing crude oil prices last week. Crude oil futures currently trade US$125.10/barrel, -14% lower than its peak US$145/barrel. We believe global oil prices could be jittery at this point after news broke out this week. [1] Israeli PM’s spoke about Iranian “nuclear breakthrough” which could spark UN interventions and also potential constraint in supplies. [2] Tropical storm Edouard is currently moving into the Mexican gulf could see supply disruption in the short term as oil production facilities shuts down.
Corporate newsflow remains dry and short with little exciting talks in the market. This week’s corporate news focused mainly on Maybank. Share price of Maybank rose +40sen this week after Bank Negara Malaysia (BNM) revoked its earlier approval to allow Maybank to buy Indonesian bank - Bank Internasional Indonesia (BII). The revocation was prompted after Indonesian regulators pass through a new rule on July 2008 which requires acquiring parties of any Indonesian bank (in this case Maybank) to sell out 20% stake in 2 years. For the benefit of those who do not follow this story, Maybank was willing to pay “exorbitant price” for BII citing reasons for regional expansion. Understandably expansion is essential for the well-being of any businesses, however, if the price of acquiring is too high, then it does not make any economic sense. Instead of improvement, the acquisition of BII was seen as risky and not justifiable by market pundits. Share price of Maybank plunged -RM2.00 (-22%) from RM8.95 ( 25th March 2008 - the day before its first announcement) to RM6.95 (7th July 2008 – 2008 year to date low). Without going too much into technical jargon and details about this acquisition, we understand that the “exorbitant pricing” was so controversial that Maybank’s CEO was asked to present this case in one of the parliament seating a few months ago. So, when this news broke out, Maybank share price recovered.
On the negative end of corporate news, the Government had scaled down UEM Builder’s Second Penang Bridge contract sum by -40% to RM1.3bn. Top glove (the world’s biggest latex glove manufacturer) issued profit warning over the weekend on the back of slower demand and high latex and energy costs.
Corporate newsflow remains dry and short with little exciting talks in the market. This week’s corporate news focused mainly on Maybank. Share price of Maybank rose +40sen this week after Bank Negara Malaysia (BNM) revoked its earlier approval to allow Maybank to buy Indonesian bank - Bank Internasional Indonesia (BII). The revocation was prompted after Indonesian regulators pass through a new rule on July 2008 which requires acquiring parties of any Indonesian bank (in this case Maybank) to sell out 20% stake in 2 years. For the benefit of those who do not follow this story, Maybank was willing to pay “exorbitant price” for BII citing reasons for regional expansion. Understandably expansion is essential for the well-being of any businesses, however, if the price of acquiring is too high, then it does not make any economic sense. Instead of improvement, the acquisition of BII was seen as risky and not justifiable by market pundits. Share price of Maybank plunged -RM2.00 (-22%) from RM8.95 ( 25th March 2008 - the day before its first announcement) to RM6.95 (7th July 2008 – 2008 year to date low). Without going too much into technical jargon and details about this acquisition, we understand that the “exorbitant pricing” was so controversial that Maybank’s CEO was asked to present this case in one of the parliament seating a few months ago. So, when this news broke out, Maybank share price recovered.
On the negative end of corporate news, the Government had scaled down UEM Builder’s Second Penang Bridge contract sum by -40% to RM1.3bn. Top glove (the world’s biggest latex glove manufacturer) issued profit warning over the weekend on the back of slower demand and high latex and energy costs.
Strategy: We predict the week ahead to be relatively quiet given jittery oil price movements and mixed sets of US economy indicators. Again, we are reiterating our bullish stance (slightly lesser this week) on equities and will be increasing our exposure if there are any significant dips. We think dips of -50pts and below will be a good opportunity to buy or average down. In terms of market direction, we think market will be 60% relatively unchanged (+/-5pts), 30% chance of moving downwards (>-5pts) and only 10% chance of moving upwards (>+5%). The market is likely to take a breather this week after rising 154pts in the last 2 weeks. PHEW ……
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