Monday, September 14, 2015

Government to support the stock market (URGENT NEWS!!)

Our PM Najib has just announced that the government will inject RM20 billion (S$6.6 billion) into a state equity investment firm to shore up the stock market (here). As a result, the FBMKLCI is now up 21 points (as at 2:50pm).

FBMKLCI may test its immediate downtrend line resistance is at 1670 soon. If it can surpass that level, it will face the tough task of breaking through the neckline of the overcome head and shoulders formation at 1680-1690.


Chart 1: FBMKLCI's daily cahrt as at Sept 14, 2015_3.00am (Source: ShareInvestor.com)

The champion in today's sharp rally goes to Tenaga. It broke above the intermediate downtrend line and may soon test the horizontal resistance at RM12.25.


Chart 2: Tenaga's daily cahrt as at Sept 14, 2015_3.00am (Source: ShareInvestor.com)

While setting up a pool to support the market will be good for the market in the short run, the jury is out on whether this will mark the bottom for the market. China, which is still wrestling with measures to support the stock market as well as control its depreciating currency, has very limited success. China stock market is still not far from its recent low and its foreign reserves had dropped substantially. We face the same problem as China - plus the problem of political uncertainty - may have to contain with the same non-plus result.

7 comments:

steve said...

Any comment from you, Alex? This immediately reminded me of how China government injecting funds to support share market. It's a dangerous game to play as (international) traders just take the opportunity to make short term profit. It's very tricky to make such announcement in public to let everyone know exactly what's going to happen.

Alex Lu said...

Hi Steve,

I share your sentiment or concern. This fund (held by ValueCap) will be positive for the stock market for the short-term. It may work out well in the long run if we follow the same approach used in 2003. (go to http://www.bloombergtv.my/valuecap-reactivated-rm20b-fund-boost/).

However, my concern is that the market may not have seen the bottom. If that's the case, then the fund will end up with a large pool of shares at high prices. Then the return for this investment will not be good.

steve said...

Thanks for the link :)

j0rfe1 said...

It means that the government expects that the Malaysia stock market is about to fall really hard. We have better run for the exit or get walloped in the stampede

Alex Lu said...

Hi j0rfe1

I would not go that far. Of course, any venture to support the market is difficult. The positive thing is that there are many stocks that have dropped quite a lot. The government is rightly worried about the negative wealth effect of a depressed stock market and feels the need to act now. The truth is there are many negative factors out there. I guess we will have to address those that are within our control. Of course the biggest elephant in the room is our political problem. That one is definitely something within our control and yet our leaders are allowing it to festered.

If the plan is to buy cheap stocks to stabilize the market, then I believe Valuecap is both commendable and workable. However, if the plan is to push up the market to help our embattled leaders, then the buying may not be sustainable as the stock selection may be biased or compromised. I see the sharp rise of FGV as a sign of things not being done right. I hope that this will not persist after the initial euphoria. I believe that Valuecap under the capable stewardship of EPF & Khazanah will perform well if the team is allowed a free hand to carried out their mission.

lai said...

The PM of Australia just changes. If only our system is that efficient then maybe confidence can be restored.

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