If we fall back on charts, there is a good reason to be less pessimistic about the ongoing European debt crisis. The main stock market barometer of the two countries that are in the heart of the crisis- Germany & France- are actually showing some strength. You would agree that the crisis today is likely to be more critical than two months ago and yet you can see that the DAX & CAC are both trading at a higher level than end of September. This may explain why these markets rose sharply yesterday on rumor that IMF is arranging a bailout for Italy totaling EURO 600 billion. The market rally did not fizzle out even when this rumor was subsequently denied by IMF (here). Nevertheless, we should note that the long-term charts for both markets are still bearish and they can easily take a turn for the worst if the debt crisis blew up. For long-term charts of DAX & CAC, go here & here.
Chart 1: DAX's weekly chart as at Nov 28, 2011 (Source: Stockcharts)
Chart 2: CAC's weekly chart as at Nov 28, 2011 (Source: Stockcharts)
Since our market was closed for Monday, we should do some catching-up today. As noted in previous post, the resistance for our FBMKLCI is the 40-day SMA line which is presently at 1453. This resistance was tested this morning. We will have to wait & see whether the index can break above it. If that were to happen, it would be mildly positive for the market. Failure to do so, would mean that the market is likely to continue to slide.
Chart 3: FBMKLCI's daily chart as at Nov 29, 2011_12.15pm (Source: Quickcharts)
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This is an excerpt taken from http://malaysiafinance.blogspot.com on nov 23, 2011
Liquidity Creeping Into The Markets
One sure fire way to anticipate a bull run is access to liquidity. I have been hearing this more than a couple of times over the past two weeks, bankers are flying in from Singapore and HK to offer decent loans to listed corporations at highly undemanding rates.
The last 6-7 years saw much of the liquidity in Asia gravitating towards supporting property loans. Hence equity markets did not get much of a boost from the excess liquidity in the system. There has been a dramatic shift in property outlook in HK, Singapore and Malaysia. Most have gone neutral or hold from buys. What that means is that banks are too flushed with liquidity and have to keep them working.
Local banks are doing the same but apparently the foreign banks are a bit more aggressive. Ringgit loans of RM50m to RM300m can be had at 2% or 3% below BLR. The juiciest one is USD loans can be had at just 0.1%. Many of the top tier companies do not really need the funds, so the bankers are going second tier and soon I think not so blue companies as well.
The natural chain of events would be that once they take the loans, they have to put it to work, usually expansion or asset acquisition, hence more corporate developments. I see this as the beginning of a bull run cycle and it would probably take another 2-4 months to ripen.
Liquidity is a massive force in charging a bull run. You have been warned.
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