Strong support at the 1,000 level (ext: Edge)

Investors should brace for more profit taking after the Asian markets underwent a technical correction on May 14 but the KL Composite Index should hold above the 1,000 level. The firmer close on Wall Street overnight could help give sentiment a boost.

External factors including the health of the US economy would weigh on investors’ sentiment, according to analysts.

The head of research at MIDF Investment Bank Zulkifli Hamzah said the market had undergone a technical correction after the strong run-up, especially in April where Bursa Malaysia was the best performer among Asian markets.

However, on a year-to-date basis, the KLCI is up 15.43%, Shanghai’s Composite Index almost 45%, Singapore’s Straits Times Index 21%, Hang Seng Index 14.97% and the Nikkei 225 only 2.64%.

Zulkifli said the correction is to be expected, he said, adding profit taking was seen on the second and third liners.

He added the KLCI had strong support at the 1,000 level. Over the next two to three months, it would be a trading market.

On the economy, he said the economy was not shrinking and the worst could be over. AmResearch concurs that although recent data on manufacturing output suggested a worst GDP growth in 29 quarters, slowing pace of declines in exports and IPI suggest worst may be over with worst case scenarios becoming academic.

"But we maintain our forecast of -4.0% for 1Q09, given declines in exports and slower growth in private sector activities. Given the severity, we expect turnaround to be more gradual and positive data should only be evident sometime late 3Q or early 4Q this year.

“But we are more bullish now than before. We expect a stronger final quarter recovery, with GDP growing at +2.0%, after -3.8% in 2Q 2009 and -2.2% in 3Q 2009. Consequently, we maintain our full-year GDP estimate at -2.0%, without any worst-case scenario,” said AmResearch.