S&P downgraded 14 US banks, upgrade China bank

Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. had long-term credit grades reduced to A- from A by Standard & Poor’s after the ratings firm revised criteria for dozens of the world’s biggest lenders. S&P made the same cut to Morgan Stanley and Bank of America’s Merrill Lynch unit today. JPMorgan Chase & Co. was reduced one level to A from A+. S&P upgraded Bank of China Ltd. and China Construction Bank Corp. to A from A- and maintained the A rating on Industrial and Commercial Bank of China Ltd., giving all three lenders higher grades than most big U.S. banks.(Source: Bloomberg)
Full news click here


How often do you see 14 US banks downgraded by S&P in one go with 2 China banks upgraded?
Here's my thought on the news:
1. This is negative on KLCI as Asian market likely to react negatively to this news. Downgraded banks include those big banks like Bank of America, Citibank and Goldman Sachs will need to put higher collateral in their trading and pay higher yield for their next bond raising. Hence these banks may be more cautious in lending, causing growth outlook dimmer in 2012.
2. Although Malaysia banks are generally not directly exposed to US banks, today's leading decliner for KLCI should be banks. Reason: banks may be more cautious on lending in view of higher global uncertainty, lower loan growth means lower earnings growth, hence lower share price.
3. Welcome to the new world... where the economy power is clearly shifting from West to East. But in the short term, we may have to go through another year of volatility in 2012...

3 reasons to take profit from some of plantation stocks

1. CPO prices should drop below RM3,200 soon (probably today) as soybean oil retreated 2.0% to 51.7 cents per pound overnight at CBOT market. Crude oil price also tumbled 3.7% to US$98.8 overnight. Concern on Europe is getting bigger as Spain bond yield is set to cross 7%.
2. 3Q result should be weaker QoQ as CPO prices has weakened in the quarter July-September. Among the big cap plantation company, IOI will kick start the result season today, which should register decline QoQ. Look for more QoQ decline...
3. Technically, some of plantation stocks has reach overbought level. For example, Genting Plantation 14-day RSI has touched 72 at closing price of RM8.02 yesterday. Rimbunan Sawit 14-day RSI reached 75 at closing price of RM0.94 yesterday.

The next country after Italy is Spain?

The recent market meltdown is caused by Italy bond yield which has increased more than 7%. What is the next country that may have its bond yield increased above 7% soon? Spain maybe the next... Here's why.

1. Currently, Spain 10-year bond yield is 5.82%, it will only need another 118 basis points to breach that 7%. Well, Italy bond yield used to be around 5.8% last month in mid-October. Then the pressure come to force its Prime Minister to resign. Within 1 month, Italy bond yield shoots up more than 7%.
2. Spain unemployment rate of about 22% is significantly higher than Italy's 8%.
3. Political scenario in Spain does not look good as well. The country will be having its election on 20th Nov, about 2 more weeks from now. Opposition party (Popular Party or PP) seems to have good chance to win. This is based on recent local and regional elections held on 22 May 2011, in which PP won 38% popular vote compared to 28% won by the current Socialist government.

Why KLCI should drop 25-35 points today?

1. Everyone knows DJIA down almost 400points yesterday. But the difference is gold also drop 1.2% to about US$1770. In normal drop, investor will flock to gold. But this time with gold also down. What does this mean? The fear is so great that investor choose to hold cash. Be prepared... this may just be the start of another major correction.
2. Futures open at about 1455-1460 points, representing 30-35 points discount to yesterday close.
3. From technical view, KLCI 14-day RSI is at 63, very close to overbought level of 70. It is also has pretty much downside to at least below 50.

DJIA up 101.79p after Berlusconi plans to resign

What's the indication?

1. Market sentiment may have turned positive, eyeing 1,500 this week which is also its 5-year average historical PE of 16.2x. Today should try to test 1,490 points.

2. Although Europe problem has not been fully resolved, market seems to have priced in the risk from Europe. Greece is gone case, but as long as Italy does not go into bailout, things should be OK.

3. Some of the KLCI stocks which RSI still below 50:
a. AMMB (44)
b. Maxis (45)
c. Maybank (46)
d. Hong Leong Bank (48)
e. MMC (48)

3 reasons KLCI may not increase above 1480 today

1. Foreign investor trading was actually at net selling of RM85m last Friday despite the increase of 15 points. Unless foreign investor come in strongly, it may be hard for KLCI to continue its uptrend.
2. Uncertainties in Europe has spread to Italy. As Italy's bond yield has increased above 6%, the market will be watching closely whether it will hit 7%. (This is the level that requires Portugal, Ireland and Greece to start receiving bailout). The market will watch closely the outcome of today's vote on the 2010 budget report.
3. From technical view, KLCI will need to retest 1500 level this week after failing to do so last week. As the RSI is at 59.5 (70 is the overbought level), it appeared that index needed more momentum to surpass 1500.

UMA query on Harvest

Subject	:	HARVEST-Unusual Market Activity ("UMA") query by Bursa Securities
Contents	:	Bursa Malaysia Securities Berhad has on 4 November 2011 issued an UMA query on the trading of the Company’s securities. In this respect, investors are advised to take note of the Company’s reply to the above UMA query which will be posted at Bursa Malaysia’s website under the company announcements, http://announcements.bursamalaysia.com when making their investment decision. The contents of the UMA query is as follows:- We draw your attention to the sharp increase in price and high volume of your Company’s securities recently. In accordance with the Corporate Disclosure Policy on Response To Unusual Market Activity pursuant to paragraph 9.11 of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad ("Main LR"), you are requested to furnish Bursa Malaysia Securities Berhad ("Bursa Securities") with an announcement for public release after making due enquiry with your directors and major shareholders seeking the cause of the unusual market activity in the Company’s securities. In this respect, you are also required to publicly confirm, amongst others, the following:- 1. whether there is any corporate development relating to your Group’s business and affairs that has not been previously announced that may account for the unusual market activity including those in the stage of negotiation / discussion. If yes, kindly provide the details including the status of the corporate development to enable investors to make informed investment decision; 2. whether there is any rumour or report concerning the business and affairs of the Group that may account for the unusual market activity and in this respect, you are required to comply with paragraphs 9.09 and 9.10 of the Main LR; 3. whether you are aware of any other possible explanation to account for the unusual market activity; and 4. your compliance with the Main LR, in particular paragraph 9.03 of the Main LR on immediate disclosure obligations. Please note that the contents of the announcement must be endorsed by the Board of Directors of the Company and the announcement must reach Bursa Securities immediately via Bursa LINK.

Top 30 Volume Stocks all under RM1.00, what's the indication?

1. Market may be over optimistic... more than 50% of them are ACE market counters.
2. Probably this is the end of the short lived bull run? But this still need to depend on the outcome of G-20 resolution over the weekend.
3. Ahead of the long weekend, is the market prepared to take some profit?
Maybe yes for selective stocks... especially if the counter has gained > 20% within hours.

KLCI up about 10p as ECB cut interest rate and Greece scrap referendum

1. The new European Central Bank President Mario Draghi has unexpectedly cut interest rate from 1.50% to 1.25%. It is also reported that he prefer to use interest rates than the printing press to promote growth in Europe
2. After being pressured by Germany and France, Greek Prime Minister George Papandreou finally cancelled his earlier plan to call a referendum on the latest bailout package

View: These news should be positive in the short term but may also be interpreted as signal that Europe is almost confirm will go into recession. ECB President said Europe is heading to "mild recession". He is good at managing expectation, but mild recession is still recession. Ahead of the long weekend, magnitude of KLCI increase may not be long lived.

Why KLCI drop when DJIA up 178p yesterday?

1. Europe has withhold aid payments to Greece before a referendum on a bailout agreement.This is an unexpected news to the market. German and French has stopped 8 billion euros aid to Greece. Basically, this is a very strong warning that Greece will surrender all European aid if its Parliament votes against a bailout package in the referendum
2. No QE3 this time from US, although Ben Bernanke did say that additional stimulus "remains on the table". Although this can still be an overall neutral news, market need a QE3 to respond to possible drag from Europe.

Final conclusion:
KLCI may drop below 1460 today, depending on how Hang Seng respond to the news.

KLCI trimmed losses (-4.69p to 1470.95p)

KLCI trimmed losses and declined 4.69p to 1470.95p after touching its lowest point of 1457.50p in the morning. Here's 2 reasons why KLCI recovered:
1. French President Nicolas Sarkozy has told Greek Prime Minister George Papandreou that the “only way to resolve Greek debt problems” is through a deal hammered out last wee. My view: this is a strong pressure from France to pressure Greece to just accept the deal. Although uncertainty is still there, it seems like France together with other G-20 countries will put on more pressure on Greece during G-20 summit on 3-5 Nov.
2. There is hope that US Federal Reserve may announced QE3 or something to continue to support US economy as it is scheduled to release its latest policy statement tonight.

3 reasons why KLCI should decline today.

1. DJIA declined 297.05 points or 2.5% overnight on growing concern that Greece may default if its Prime Minister referendum is rejected. My view: This is a very risky step to take from Greece. Papandreou won his last major vote on austerity measures by slim margin 154 votes to 144 on Oct. 20.
2. Yesterday KLCI drop 16.25 points to 1,475.64. This may well only the beginning as 10 points increase on Monday (31-Oct) happened when most Asian markets are down. Hence, we can say net net KLCI only down 6 points yesterday (less than 1%). My view: My guess KLCI should down between 10-15 points to 1460 to 1465 level. If that is broken, 1450 will be the next support.
3. From technical point of view, KLCI 14-day Relative Strength Index or RSI has declined from 66 to 61. This is still very close to overbought level of 70. My view: With many issues of global market (especially Europe) remain unresolved, KLCI short term bearish trend may have just begun.

Indeed KLCI down 16.25p or 1.1% to 1475.64, but why?

Check my post this morning on 3 Reasons KLCI wont close above 1500 this morning, and now KLCI down 16.25p or 1.1% to 1475.64 at close on the 1st day of trade in November.

Why KLCI down so much?
1. China growth may already be dragged by decline in Europe as its Purchasing Manufacturing Index or PMI drop to 3 year low level of 50.4 in Oct-2011.
2. At 4pm, Europe market tumbled more than 3% after Greek Prime Minister George Papandreou called a referendum and a parliamentary confidence vote, potentially derailing the European bailout effort and pushing Greece into default.
3. Foreign investor may start selling again. MYR has weakened 1.9% against USD today as of 5pm. In a normal day, you seldom see such a huge changes.

Supermax 1-to-1 bonus issue

Share price reaction? Up 8 sen to RM3.78 as of 3pm...
Average analyst target price = RM3.76, seems like upside is limited from now onwards.

3 reasons why KLCI wont surge above 1,500 today.

1. DJIA declined 276.1 points or 2.3% overnight amid concern European leaders may have problems to raise funds to contain its debt crisis. My view: China may not necessary want to help Europe with free money, definitely they will ask for something, e.g. to allow free trade of China products into Europe.
2. Yesterday surge of 10 points happened when most Asian markets are down. E.g. Hang Seng down 154 points or 0.8% and Nikkei down 62 points or 0.7%. My view: Malaysia boleh? Maybe not today...
3. From technical point of view, KLCI Relative Strength Index or RSI has reached 66, very close to overbought level of 70. My view: With many issues of global market remain unresolved, KLCI short term bullish trend may have come to an end.