Malaysian stocks face further weakness

Stock-wise, investors should cut exposure in banks because of the likely fallout from sharp falls in finance shares globally and switch to bargain top-tier construction stocks such as Gamuda and IJM Corp

Further weakness can be expected this week given the sharp losses suffered on Wall Street last Friday, after the US economy shrank at a weaker-than-expected 6.2 per cent in the fourth quarter of last year. Falls should spill over to regional markets, while on the domestic front, the weaker-than-expected fourth quarter GDP of plus 0.1 per cent should further depress local sentiment given higher possibility for a technical recession this year.

On the KLCI, the decisive breakdown below the middle Bollinger band at 893 last week will grease downside towards next meaningful support at 869, the 50 per cent retracement of the upswing from 801 pivot low to 936 high, which mirror the late January lows. Downside momentum will also increase upon a breakdown below the lower band of the rising wedge congestion pattern. This important support must hold to prevent further losses towards the next cushion at 853, the 61.8 per cent retracement level.

Stock-wise, we continue to advocate investors reduce exposure in banks such as AMMB, BCHB and Maybank due to the likely fallout from sharp falls in financials shares globally, and switch to bargain top-tier construction stocks Gamuda and IJM Corp expected to benefit from the second stimulus plan to be unveiled on March 10. Defensive gaming stocks such as BToto, Genting, Resorts World and Tanjong plc are good buys for longer term gains.

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.