WITH barely a month left before 2020 comes to a close, investors are likely busy wrapping up their trading activities with probably a last ditch effort to make a quick buck from the stock market.
From CGS-CIMB Research perspective, below are three key areas that they must pay heed to:
- Economics: Watch out for the OPEC meeting (Dec 3); Budget 2021 final vote (Dec 15-17); US Federal Open Market Committee (FOMC) meeting (Dec 16); and deadline for the Brexit transition period (Dec 31).
- Corporates: Spot light on the FBM KLCI semi-annual review (Dec 3); keeping pace with reports on new COVID-19 cases in Malaysia as well as news on whether the conditional movement control order (CMCO) will be extended beyond Dec 6 for Sabah and Klang Valley (restricted movement measures will result in lower consumer spending).
- Global: Reports of new COVID-19 cases globally and development of vaccines and distribution plans.
On a more bullish note, an analysis of FBM KLCI’s historical data shows that performance of the benchmark index tends to be positive in December with an average month-on-month (mom) return of 2% over the past 10 years and 3.5% over the past 40 years, according to the research house.
“Historically, the Malaysian equity market may have turned positive in December due partly to year-end window dressing activities,” pointed out head of research Ivy Ng Lee Fang in a strategic note.
To re-cap, November was a great month for the FBM KLCI as it recorded its strongest month since July this year by adding 95.82 points or 6.5% mom.
“Despite the last day sell-off on the benchmark, it was a fairly strong close on the monthly chart,” observed CGS-CIMB Research.
“The close was its strongest in four months and it engulfed two candles prior, potentially signalling that the next leg up may be underway. However, it appears that there is a strong resistance band at the 1,618-1,625 levels.”
In fact, the FBM KLCI tested the 1,618-1,625 critical resistance at least five times over the course of the year with last Friday’s (Nov 27) test being its latest.
The index failed to breakout on each of those occasions, implying that the bears are still in charge.
According to the research house’s projection, the bulls would not want the index to fall and close below the 1,513 levels as it would confirm that the index may be heading back below the November low of 1,452 next.
“We expect December to be more subdued (i.e in consolidation) compared to the strong performance in November,” opined Ng.
“On the upside, if the index can overcome and close above the critical resistance, we believe that a long-term bull market is underway.”
All-in, CGS-CIMB Research’s recently revised year-end 2020 FCM KLCI target of 1,628 points suggests the market will deliver a 4.2% mom gain in December and will likely end this year 2.5% higher than 2019’s closing of 1,589 points.
Its top three picks are Telekom Malaysia Bhd, Inari Amerton Bhd and Public Bank Bhd.
“This is in line with our stance that investors should be positioned in companies that will benefit from the recovering economy as the impact of the COVID-19 outbreak eases,” added the research house. – Dec 4, 2020
