Shares on Bursa rebounded after opening on a weaker footing yesterday. Sentiment may have been buoyed by a rally in key Asian markets. Nevertheless, market volume remained relatively thin. It is quite likely that the market will see more volatility in the days ahead.
The KL Composite Index opened in negative territory and continued to fall for much of the morning session. Plantation stocks were among the big losers. Investors are reacting to the sharp fall in crude palm oil (CPO) prices. The benchmark CPO futures contract traded on the Bursa Derivatives closed below RM3,300 per tonne. Prices had averaged around RM3,500 per tonne in the first half of the year.
The fall in CPO prices was triggered by weaker crude oil prices. Oil prices retreated from record high levels last week due, in part to expectations of slowing demand from weaker global economies. Crude oil futures on the New York Mercantile Exchange are now hovering around US$130 per barrel.
There remains debate as to whether this latest price retreat is sustainable. Global spare production capacity is limited, leaving the market vulnerable to supply disruptions. However, for now, many are breathing a little easier for the relief. Lower oil prices will certainly help cool inflationary pressures.
Recent news reports suggest that domestic inflation rate may have risen to the highest level in more than two and half decades. This raises worries that the central bank will hike interest rates soon. If so, higher borrowing costs will further dent consumer spending already weighed down by higher food and fuel prices. Weaker demand and rising cost of doing businesses will also eat into corporate earnings growth.
The KLCI ended the day marginally lower 1,103.5 points after falling by almost 16 points earlier in the day. Market volume however remained fairly low at 375 million shares. Market breadth too was in the red despite the headline gains. At the close, losing counters outnumbered gaining ones by a ratio of about eleven to ten.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
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