NOT AN 'APRIL FOOL' SURGE: Has the Malaysian market already priced in the GE13 results?

Folks, I think our market has already ‘priced in’ our elections results today (April 1, 2013) and this is no April Fool's joke, so sad to say. But that does not in anyway mean the market favours the Barisan Nasional government to win over the Opposition.

What the market movement was trying to convey is the BN is not dead yet, but in fact, still kicking and alive. If you care to remember the earlier rumour on 21/01/2013 that Parliament was about to be dissolved, which some said was a bait to test market reaction, well, the market plunged that day. The index fell a steep 45 points at one time on heavily traded volume (1.83bil shares). That was also the largest volume recorded so far this year.

After that session of jitters, it seems like investors have gotten used to such news and will continue to punt, buy and sell as usual, instead of getting all nervous and exiting completely. Indeed, investor nervousness seems to be tapering off. This can be seen in the charts with the market moving into a consolidation phase between 22/01/2013 to 27/02/2013 before starting to rise again.

Price Discovery and Mass Psychology

The Stock Market is a place where tens if not hundreds of thousands of investor meet to wager their bets daily. The price discovery of the market index and individual stocks is determined by the greed and fear of the investors. If the price of a stock is going up then obviously greed overtook fear for the moment because greedy buyers are bidding up the price and they are willing to absorb any amount of volume that is offered for sale by fearful investors. If the price of a stock goes down then the opposite happens. The price discovery will come to an end when there is an equilibrium achieved between the buyers and sellers. The extent of the price decline and rise depends on both the depth (volume) and the momentum.

Absence of Surprise and Uncertainty

The severity of the bad or good news depends on the reaction of the market participants to the element of surprise and uncertainty towards the news. Since surprise and uncertainty are the two major enemies of the Stock Market and if the news is viewed as a serious threat to the market then their ‘future expectation’ on the performance of both the companies and the market as a whole will be uncertain and will surely affect their stock prices. However I can confidently say that both the element of surprise (although happened for about half an hour this morning) and uncertainty is not serious enough to cause a dent in the market sentiment this morning. Hence in a way the stock market provides a perfect avenue for us to study the ‘mass psychology’ associated with the investing public. So it can be concluded that the public at large did not felt the threat of uncertainty be it political or economic at any time in the near term affects their investment decisions.

After the announcement of Parliament dissolved this morning (01/04/2013) the market reaction seems to be mild as if it is a ‘Non Event’ and the market only dropped about 12 points in reaction to the news. At the end of the day it managed to recover most of its earlier losses. So we can conclude that the severity of this news and hence its impact on the stock market is only mild and will be discounted in due course.

If the market reaction is of no confidence to the current establishment then I am sure the market would have dropped by triple digits. However this scenario did not played out because both local and foreign funds are still in the market and there are no signs of panicking. From this I reckon that there is still some kind of underlying confidence with the current establishment.

Big Push in Market soon?

From the FBMKLCI chart below what I can see is there still exist a continuation pattern in the current uptrend. The Index was down for the past two days but was done in low volume. This is a healthy sign thatthe current uptrend is still intact. The RSI indicator seems to be on the neutral (50.2 points) and there is no sign of overbought. Both the MACD and Momentum indicators are on the positive zone so I reckoned that the current play is not yet over and I wo

n’t be surprise if there is going to be a ‘big push upwards’ in the coming days.

So I reckoned that the current FBMKLCI uptrend is still intact and those doomsayers who predicted a big correction in the KLSE when the Parliament dissolved will be in for a surprise and I would say they have missed the boat if they sold earlier.

Still some life left in the BN

Coming back to the message that is implied by the market reaction today, I reckone that the Market confidence is still tilted towards the incumbent government. If the Barisan Nasional government has been written off completely, then the market would have shown weakness by dropping at least 50 – 100 points on heavy volume.

But this scenario not only did not play out. Instead the volume transacted (0.59Bil) was even smaller than the previous session (0.61Bil). This shows that nobody is getting out and they are still holding on.

I hope that the Opposition will not become too confident of winning this election. From the charts, it is clear many investors feel the BN will give a good fight. So don't be complacent, and as they say, Lawan tetap Lawan (Fight On!).

Malaysia Chronicle