09-June-2008 : KLCI Recovery from Thursday's sell-down

KUALA LUMPUR: Stock prices on Bursa Malaysia traded higher on Friday, helped by an overnight rally on Wall Street, light bargain hunting and strong gains in Tenaga Nasional Bhd's shares.

The KLCI recovered much of Thursday's steep losses on the wake of the government's move to increase fuel prices. The market had plunged on Thursday as investors and the public reacted to hikes of 41% in petrol prices and 63% in diesel prices, plus increases in electricity tariffs, and windfall taxes for and plantation and IPPs companies.

However, much of Friday's KLCI gains were due to Tenaga, which has received a tariff hike of 18%-26% as part of the government's fuel subsidy reform. After a one-day suspension, the stock surged 23% to RM9 on heavy volume of 66 million shares, and was the day's most actively traded stock.

Advancing stocks led declining ones by a 2-to-1 ratio. Trading volume fell from 623 million to 577 million shares. Apart from Tenaga, other volume leaders include Resorts, TM, Gamuda Bumiputra Commerce and AMMB. Tenaga was the top gainer, followed by the likes of Kulim, DiGi and Asiatic. Losers include BAT, Berjaya Land and RHB Capital.

The recent fuel hike will have far reaching effects on consumers and businesses already grappling with higher inflation and food costs, and thinner margins. It will reduce disposable incomes, affect consumer spending and lead to higher inflationary pressures. Indications that fuel prices will be adjusted on a monthly basis will likely create more uncertainty and tighten spending.

Consumers can expect a broad range of price increases in the coming days, as businesses assess the impact of higher petrol and electricity costs. Thus, we expect market sentiment to stay cautious in the near term, as investors reassess corporate earnings prospects.