KUALA LUMPUR: Investors continued to snap up Malaysian assets yesterday amid improving domestic and external dynamics, pushing up share and palm oil prices, while the ringgit strengthened.

The FTSE Bursa Malaysia KLCI rose to a fresh two-year intra-day high of 1,330.28 points, up 0.9% or 12.34 points, before ending the day at 1,328.22, a 10.28-point advance from the previous day. Of the 10 leading movers of the index, four were plantation stocks, followed by two banking counters.

Analysts said a revival in buying interest was crucial to spur the equities barometer to higher levels.

“Looking ahead, resurgent buying momentum and positive market breadth will be crucial to sustain a breakout rally to higher levels,” TA Securities Holdings Bhd wrote in a note to clients.

The immediate resistance levels for the FBM KLCI are seen at 1,325, followed by 1,341, while support is found at 1,312, 1,308.5, 1,300 and 1,288, according to TA.

Malaysian assets have rallied since Bank Negara Malaysia (BNM) raised the overnight policy rate by 25 basis points to 2.25% last Thursday, prompting inflows that could be speculative in nature. South Korea is next to decide on its monetary policy today.

Among prime movers of the FBM KLCI, plantation stocks Sime Darby Bhd added 13 sen to close at RM8.82, IOI Corp Bhd rose eight sen to RM5.54, PPB Group Bhd advanced 60 sen to RM17.30, while Kuala Lumpur Kepong Bhd (KLK) gained 38 sen to RM17.02.

CPO supply concerns were among the factors for plantation stocks’ gains.

The Kuala Lumpur Plantation Index surged 2.7% or 170.57 points to a 19-month intra-day high of 6,571.46 before closing at 6,520.24 for a daily gain of 119.35 points. Malaysian crude palm oil (CPO) prices for May 2010 delivery ended RM35 higher at RM2,685 a tonne.

CIMB Group Holdings Bhd climbed 14 sen to a fresh high of RM14.28, leading Malaysian banks higher after BNP Paribas said valuations of the country’s lenders remained “compelling” even after their recent rally, according to a Bloomberg report.

Malayan Banking Bhd added seven sen to RM7.48 while RHB Capital Bhd rose three sen to RM5.69. Banks are trading at “below historical averages”, BNP analyst Ng Wee Siang said in a report.

Meanwhle, the ringgit was traded at its strongest point in 18 months versus the US dollar at 3.3123. Foreign houses have called for a buy on the ringgit on expectations that BNM would raise rates again this year, while other regional economies may show more restraint in reining in their monetary stimulus.

For one, the Royal Bank of Scotland Group plc said investors should buy the ringgit against South Korea’s won and Japan’s yen. Excluding the yen, the ringgit has been the best performer in the region, having risen 2.6% so far this year.


CPO prices to advance further?
RHB Research Institute Sdn Bhd analyst Hoe Lee Leng said while it was possible for CPO prices to pierce the RM3,000 a tonne level amid the current bullish momentum, the research house did not the discount the fact that prices may fall in the normal seasonal peak output period in the second half of this year.

“Our forecasts are based on the assumption that there is no impact from weather anomalies like El Nino, given that it would be difficult to know if El Nino has really had an impact until six months after the fact, which in this case, would fall during the peak production period for CPO in the third quarter of 2010.

“We believe (Godrej International Ltd director) Dorab Mistry’s projection for stronger CPO prices in the second half of 2010, would only come through if the impact of El Nino on production is relatively severe,” Hoe wrote in a note to clients yesterday.

Mistry, who spoke at the Palm & Lauric Oils Conference and Exhibition here on Tuesday, had said CPO prices could hit RM3,200 a tonne after July.

This is in anticipation of lower CPO production in the second half of this year as the biological high cycle in palm oil production tapers off against the backdrop of dry weather due to the El Nino phenomenon.

Malaysian CPO output fell by a monthly pace of 12.1% to 1.16 million tonnes in February this year, the fourth consecutive month of decline, according to latest updates on the Malaysian Palm Oil Board’s website yesterday. CPO production in January came to 1.32 million tonnes.

Palm oil stocks dropped 10.5% to 1.79 million tonnes in February, the second consecutive month of decline compared with the two million tonnes seen a month earlier. The country exported 1.29 million tonnes of palm oil in February, 11.6% less than the 1.46 million tonnes in January.

Latest updates by market surveyor Intertek indicate that Malaysian palm oil exports rose 25.4% to 464,889 tonnes in the first 10 days of this month compared to 370,727 tonnes during the same period a month earlier.

Looking ahead, RHB’s Hoe expects fundamental factors including the current seasonally weak CPO output besides impact of higher replanting activities in Malaysia, and existing weather abnormalities to drive CPO prices higher in the near term.

The research firm maintains its average CPO price assumptions of RM2,500 a tonne for 2010, and RM2,700 for 2011.

RHB also retained its overweight stance on the palm oil sector and plantation-related firms like IOI, KLK, Sime and CB Industrial Product Holding Bhd. Genting Plantations Bhd and IJM Plantations Bhd are, however, rated underperform.


This article appeared in The Edge Financial Daily, March 11, 2010.