Market observers see no catalyst for improving sentiment in the immediate term for the FBM KLCI as political uncertainty and weakening growth at home take hold. However with such a significant drop, a rebound would usually follow as selling activity eases.
The three days of downtrend have brought about some oversold signals.
Immediate support is at 1633 - 1635 points followed by 1590-1600 point.
From the looks of it, the Malaysian market is posting among the biggest drops in the region, which suggests that the FBM KLCI’s decline may be due to factors unique to Malaysia. The rebound may not be sustainable as concerns still remain.
There is still light at the end of the tunnel as foreign investors are seen to be waiting for an opportunity to return to the local market once the dust settles.
Going forward, the ringgit may find some stabilisation at current levels (10 Aug 2015) and unlikely to move beyond RM3.93 to the US dollar. If the ringgit moves beyond the 3.93 level, its next resistance would be between 4.02 and 4.05 to the dollar.
As of end-July 2015. the country’s foreign reserves reduced by US$8.8bil, the largest it has fallen since December 2014, to US$97.6bil. At current levels, Malaysia’s foreign reserves are sufficient to finance 7.6 months of retained imports and are 1.1 times the short-term external debt.
However, the impact from the net selling of Malaysian equities and bonds was suppressed likely due to a sustained trade surplus. The trade surpluses are likely to sustain and come in to beef up falling reserves in the coming months from Aug 2015. The trade balance in the second quarter of 2015 remained in a surplus of RM20.4bil compared with RM21.3bil in the previous quarter.