KUALA LUMPUR: The local market benchmark index fell over 1% on May 14 in line with the overall decline on regional bourses after a sharp decline in US stocks overnight.

On the local front, Maybank Investment Bank (Maybank IB) advised investors to take profits now in view of the extremely overbought situation and high volumes traded recently on Bursa Malaysia Securities.

However, RHB Research told investors that Malaysian banks and glovemakers were undervalued, even after outperforming the main index this year, and could weather the slowdown.

Investor sentiment was dampened after the Dow Jones Industrial Average lost 184.22 points, or 2.18%, to 8,284.89, while the broader-based Standard & Poor’s 500 index slipped below the 900-mark after giving up 24.43 points, or 2.69% to 883.92 following weak economic data that were released in the US on May 13.

The US Commerce Department reported a 0.4% drop in April retail sales while the fall in March was revised to 1.3%. A recovery in consumer consumption, which accounts for 70% of the US economy, in 1Q09 had earlier buoyed hopes for a quick recovery for the world’s largest economy. Adding to that was another report that indicated a worrying rise in US home foreclosures.

On regional markets, Hong Kong’s Hang Seng Index fell 3.04% to 16,541.69 points, Japan’s Nikkei 225 down 2.64% to 9,093.73 and the South Korean Kospi lost 2.37% to 1,380.95.

Singapore Straits Times fell 2.89% to 2,122.11 points, Taiwan’s Taiex Index declined 1.87% to 6,364.17 points and the Shanghai Composite Index lost 0.9% to 2,639.89.

On Bursa Securities, the KLCI fell 1.06% or 10.85 points to 1,011.99. Volume fell significantly to 2.69 billion shares valued at RM1.89 billion from 3.2 billion shares valued at RM2.07 billion on May 13.

Losers thumped gainers by 557 to 142, while 201 counters traded unchanged. Among the major losers were PPB Group Bhd, Tanjong plc, Genting Bhd, Malaysian Airline Systems Bhd, UMW Holdings Bhd and Hong Leong Financial Group Bhd.

In an early morning advice on May 14, Maybank IB said bearish divergence was abundant and a correction phase was imminent.
It said the Tom Demark Sequential indicator showed a Red 13 Sell Countdown high at 1,037.81 on May 7.

“This shows that the KLCI has made a key temporary high at 1,037.81. The MACD (moving average convergence divergence) is about to issue its sell signal — signalling an imminent correction may be on the way,” the research house said in a report.

Maybank IB said after the KLCI’s marginal decline of 0.18 point to 1,022.84 on May 13, investors may nibble on dips to the supports of 998 and 1,013.

“Heavy profit-taking on rallies to the resistances of 1,022 and 1,037 will cap market gains for now. As volumes remain at stellar levels, investors will profit-take on most of their positions. Sell positions to realise profits first and then re-enter at lower and more attractive levels,” it added.

In a report on May 14, HwangDBS Vickers Research expected the KLCI to back off from 1,020, which was the immediate support line, after gyratings sideways before closing broadly flat for the past five days.

“If so, follow-through profit-taking momentum may then push the KLCI towards its next psychological support level of 1,000 ahead. This comes as investors’ confidence of a sustainable recovery in the US economy was shaken a bit when the retail sales report for April came in weaker than expected,” it said.

“Back home, of interest is whether the robust trading activity in the second and lower liners will persist or ease off, whose momentum may influence the broad market trend in the near term,” it said.

Meanwhile, Bloomberg reported RHB Research as saying that the Malaysian market now offers “good stocks at good prices”.
RHB Research said Top Glove, the world’s largest rubber glovemaker, and its smaller rival Kossan Rubber Industries Bhd were “still significantly undervalued”.

Top Glove, which has called its medical gloves “recession proof”, has surged 67% this year, partly because of increased demand following the swine flu outbreak.

According to RHB Research, four straight days of declines on the KLCI this week, the longest losing streak since March 12, may be a buying opportunity.

It said the market’s breather was just one of many that it expected to see in a volatile trading market. It said investors should look for opportunities to buy the fundamentally robust stocks.