Bursa Malaysia KLCI Index Analysis - What's Next For Malaysia's Stock Market?
I used to not look at Bursa Malaysia KLCI index. After a friend ask me about it, I find it interesting to do analysis on my home country's stock market as well. A developing country that is multiracial, this country is blessed with an abundance of natural resources and is a very popular destination for tourists. According to Malaysia's Tourism Website, the revenue from tourism in 2015 is RM 69.1 Billion (that's about $17 Billion USD).
Anyway, in the eyes of foreign investors, Malaysia is very much dependent on oil. After all, we do produce oil in Malaysia and because of oil, we are able to power the economy in this country. With oil money we are able to build many infrastructure and buildings like the Petronas Twin Towers.
A very good investment since it draws in huge amount of tourist in the world who come to Malaysia to see the tallest twin towers in the world. I have to praise Tun Dr Mahathir for that. Something like how the Queen of England and Buckingham Palace contribute so much to the tourism industry in UK. Landmarks certainly draw crowds. And if they draw an extra 1,000 people a day to Malaysia, that will greatly contribute to Malaysia's tourism since people who come here often spend money too. You can check out the number of tourist arrivals to Malaysia here.
As we enter into the 59th year of independence from British rule on 31st August 2016, just want to wish all Malaysians a very happy "Selamat Hari Merdeka!"
Let's look at what Malaysia's charts are telling us.
Anyway, in the eyes of foreign investors, Malaysia is very much dependent on oil. After all, we do produce oil in Malaysia and because of oil, we are able to power the economy in this country. With oil money we are able to build many infrastructure and buildings like the Petronas Twin Towers.
A very good investment since it draws in huge amount of tourist in the world who come to Malaysia to see the tallest twin towers in the world. I have to praise Tun Dr Mahathir for that. Something like how the Queen of England and Buckingham Palace contribute so much to the tourism industry in UK. Landmarks certainly draw crowds. And if they draw an extra 1,000 people a day to Malaysia, that will greatly contribute to Malaysia's tourism since people who come here often spend money too. You can check out the number of tourist arrivals to Malaysia here.
As we enter into the 59th year of independence from British rule on 31st August 2016, just want to wish all Malaysians a very happy "Selamat Hari Merdeka!"
Let's look at what Malaysia's charts are telling us.
I wrote something about Malaysia's KLCI in How To Profit From The Cup And Handle Pattern because I saw a cup and handle pattern in this index. I noted that it was a weak cup and handle since it was forming in a weekly downtrend. The upwards move from July to Aug is a result of the influence of the bull market in US and also the rise in oil prices.
The recent rally was a good one but it failed to reach the target perhaps because of the huge area of supply on the left. The rally absorbed the supply there and the KLCI index fell smoothly and is meeting its 20 MA. Perhaps a break above downtrendline around the 20 MA may start another leg up.
The recent rally was a good one but it failed to reach the target perhaps because of the huge area of supply on the left. The rally absorbed the supply there and the KLCI index fell smoothly and is meeting its 20 MA. Perhaps a break above downtrendline around the 20 MA may start another leg up.
Looking at the weekly charts of Malaysia above, you can see that the Bursa Malaysia KLCI index is trying to break above a long term downtrendline. This is usually a bullish event. Breaking long term downtrendlines are good. If there is follow through, we can expect better things for the stock market in Malaysia.
From a long term investor point of view, the monthly chart above shows how the Malaysian index has risen over the years from around 800 to 1683. The wealth of this index has doubled since then. However, the recent drop from 2015 to 2016 may scare many investors. The KLCI is currently finding support at congestion area and it is trying to form a base. Breaking above the long term downtrendline may start another Stage 2 uptrend. You can read more about market stages by reading The 4 Stages Every Stock And Market Goes Through.
An analysis of the Malaysian market will not be complete without looking at EWM, which is the exchange traded fund that is listed in US. It kind of give us the view of Malaysia from the standpoint of a "Mat Salleh" or foreign investor. You can see EWM trying to form a base recently and it is also trying to start a new uptrend by going above the 200 day moving average. Stocks or indexes that are going above the 200 MA are deemed to be getting healthier in the long run. How To Use The 200 Day Moving Average To Trade Stocks
The other thing we need to take note when analyzing countries that have a big dependent on oil is to look at oil prices. When you put the EWM on top of oil price, you can see how Malaysia is so correlated to the price of oil. It almost rise and fall based on the price of oil. Different from KLCI but that is just how foreigners view Malaysia. Malaysia to them is a country that is and will be influenced by oil prices.
On a political point of view, oil prices have and always will influence the rise and fall of governments in countries that are oil dependent. When the price of oil dropped, there were many countries who have overthrown their government during the Arab Spring. Prior to the Arab Spring, oil prices were falling like a rock and this made it difficult for governments in oil producing countries to feed its people and maintain the economy in the country. After all, money is still important to feed a family and is a medium of exchange for important services in the country.
On a political point of view, oil prices have and always will influence the rise and fall of governments in countries that are oil dependent. When the price of oil dropped, there were many countries who have overthrown their government during the Arab Spring. Prior to the Arab Spring, oil prices were falling like a rock and this made it difficult for governments in oil producing countries to feed its people and maintain the economy in the country. After all, money is still important to feed a family and is a medium of exchange for important services in the country.
Many Malaysians are worried about the country's political future. With the 1MDB scandal and stuff, some want change while some want a status quo.
As a financial analyst, I can tell you that the stock market really does have an influence in changing or retaining a government. That's the case for countries that have a stock market and have a democratic election process. I wrote a piece titled Why Hillary Clinton Will Be The Next US President. How The Stock Market Has Correctly Predicted Elections In US & Around The World and in there, I pointed out how a rising stock market before election almost always is good for the incumbent candidate or government. It has proven to be true in United States, UK and Malaysia.
During the last election in Malaysia, there was a big sentiment in changing the government. However, the stock market was telling another thing. Market participants were pricing in a Barisan Nasional victory. Read the article to learn more.
With regards to Malaysia, I think the next election results will be very much influenced by oil prices. As you can see from the chart above how Malaysia's EWM has risen and fallen based on the price of oil, I am convinced that a rising oil price will be good for Malaysia's stock market. You can read my Intermarket Analysis Aug 3rd Week 2016 to see why things may look good long term for oil.
Rising oil prices are good for oil stocks. It is also good for Malaysia's stock market. A bullish and rising stock market in Malaysia before the general election will be good for the incumbent government in any country that practices democracy. It's a bit surprising sometimes to know that what happens in a country is much heavily influenced by events around the world. In our case oil prices.
Well, election in Malaysia is still some time away. Those who want a change in government may be better served by oil prices remaining low. While a bull market in oil will most likely allow the incumbent government to stay in power.
Whatever it is, we are all still Malaysians. Selamat Hari Merdeka!
As a financial analyst, I can tell you that the stock market really does have an influence in changing or retaining a government. That's the case for countries that have a stock market and have a democratic election process. I wrote a piece titled Why Hillary Clinton Will Be The Next US President. How The Stock Market Has Correctly Predicted Elections In US & Around The World and in there, I pointed out how a rising stock market before election almost always is good for the incumbent candidate or government. It has proven to be true in United States, UK and Malaysia.
During the last election in Malaysia, there was a big sentiment in changing the government. However, the stock market was telling another thing. Market participants were pricing in a Barisan Nasional victory. Read the article to learn more.
With regards to Malaysia, I think the next election results will be very much influenced by oil prices. As you can see from the chart above how Malaysia's EWM has risen and fallen based on the price of oil, I am convinced that a rising oil price will be good for Malaysia's stock market. You can read my Intermarket Analysis Aug 3rd Week 2016 to see why things may look good long term for oil.
Rising oil prices are good for oil stocks. It is also good for Malaysia's stock market. A bullish and rising stock market in Malaysia before the general election will be good for the incumbent government in any country that practices democracy. It's a bit surprising sometimes to know that what happens in a country is much heavily influenced by events around the world. In our case oil prices.
Well, election in Malaysia is still some time away. Those who want a change in government may be better served by oil prices remaining low. While a bull market in oil will most likely allow the incumbent government to stay in power.
Whatever it is, we are all still Malaysians. Selamat Hari Merdeka!