Wednesday, July 4, 2012

KLCI At Historical High

KLCI recorded another record high of 1629! As we can see from the chart above, there was a reverse head and shoulder formed during the period of April to mid June 2012. On June 19th, there was a breakout from this bullish chart pattern and now heading towards the price target of 1646.

While technical analysis tells you the possibility of near term price action, in a larger picture, we still rely on the fundamentals to give us a glimpse into the future.

The Euro debt crisis is still on, the politicians have not come up with the best solution yet. The concern is the bond yield (or the cost of borrowing) for Greece, Span and other debt ridden countries are much higher than their counterparts like Germany, Sweden and Denmark. For example, the 10 yr bond yield for Germany is below 3% while Spain is closed to 7%. It is believed that those debt ridden countries cannot survive with such high cost of borrowing and that they are suggesting the richer EU countries like Germany and Denmark to share the weaker countries debt burden by jointly issuing government bonds. By doing so, the borrowing cost of Spain and Greece is lowered while that of the Germany is raised.

During the recent Brussel Summit in June the above proposal did not materialized but instead a temporary measure is agreed upon. That is the 120 billion euros growth package was agreed upon during the 2 day summit with funding from the ECB to help solve the problem temporary.

In the US, concern is with the unemployment data that remain stubbornly high at above 8% but it is declining which is a good news for the US. In addition, the corporate sector is generating huge profits as products such as Microsoft, Apple, Johnson & Johnson etc are selling all over the world!

On a contrary, things are not looking good in China. Recently the Chinese data shows that the economy is contracting with weaker PMI and GDP data.

Hence we shall expect the markets to remain choppy until the situations get better in the EU and China.

Happy investing,
Pauline Yong