Market Outlook as at May 28, 2007

The much-anticipated market correction has finally begun. Some analysts expect this correction to be relatively mild & the market should stay above the 1300 level. I believe this to be the best case scenario. Our market may find some support from the buoyant oversea markets as well as expectation that the market may still rally in the second half of this year because of the upcoming general election.

Nevertheless, the buoyant global equity markets is a double-edged sword. While these buoyant oversea markets, especially the overheated Chinese markets, have helped to fan the flame of bullish sentiment locally, they are also hanging like the Sword of Damocles above the investors' head. A sharp correction in the Chinese stock markets could easily trigger an equally sharp sell-off here. A break below the 1300 level could bring forth a more frightening scenario of our market entering into a bearish phase. At times like this, caution is needed.


Chart: KLCI's daily chart as at May 25 (courtesy of Quickcharts)