The Malaysian stock market finished lower by less than a point on Tuesday, but that was enough to snap the market's five-day winning streak that saw it collect more than 35 points or 4 percent in the process. The Kuala Lumpur Composite Index maintained support at 875 points, but now analysts say the market could fall through that level at the opening of trade on Wednesday.
The global forecast for the Asian markets calls for a correction to the downside in the form of profit taking as many of the regional bourses are riding moderate winning streaks and have posted sizeable gains in recent weeks. The financials in particular have risen sharply in the last week and could be ripe for some selling pressure. The European markets ended the trading day mixed, while the U.S. markets all finished lower - and the Asian bourses are tipped to follow suit.
The KLCI finished barely lower on Tuesday, as profit taking started to kick in following the recent winning streak. Gains among the plantation stocks and the financial issues were offset by weakness among the industrials.
For the day, the index eased 0.38 points or 0.04 percent to close at 877.92 after trading between 875.26 and 890.50. Volume was 671.531 million shares worth 1.039 billion ringgit. There were 275 decliners and 239 gainers, with 194 stocks finishing unchanged.
Among the actives, UEM Land, Sime Darby, Tenaga Nasional and Maybank all finished lower, while KNM Group was flat and Resorts World, IOI Corp, Genting, Zelan, Bumiputra-Commerce and MISC ended modestly higher.
The lead from Wall Street has cooled as stocks moved back to the downside going into the close of trading on Tuesday after failing to sustain an afternoon recovery attempt. The major averages all ended the day firmly in negative territory, partly offsetting the standout gains posted in the previous session. While profit taking contributed to some weakness in the markets, selling pressure remained relatively subdued, helping the major averages to hold onto the bulk of Monday's gains.
For much of the session, traders were keeping a close eye on Capitol Hill, with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner testifying before the House Financial Services Committee. During his testimony, Geithner said the near-collapse of AIG (AIG) highlights broad failures of the U.S. financial system, and he pledged to work on improving the regulatory structure in order to prevent another similar situation.
I share the anger and frustration of the American people, not just about the compensation practices at AIG and in other parts of our financial system, but that our system permitted a scale of risk-taking that has caused grave damage to the fortunes of all Americans, Geithner said.
Bernanke added that the bonuses paid to employees of AIG were highly inappropriate. At the same time, Bernanke outlined the reasoning behind the government's repeated interventions to prop up AIG despite severe mismanagement within the embattled insurance giant. The Fed Chairman noted that AIG must scrupulously avoid any excessive and unwarranted compensation.
We have pressed AIG to ensure that all compensation decisions are covered by robust corporate governance, including internal review, review by the Compensation Committee of the Board of Directors, and consultations with outside experts, Bernanke said.
However, the attacks on AIG have pushed other financial groups to work to return government funds as soon as possible. According to the Wall Street Journal, Goldman Sachs (GS) may sell its stake in the Industrial and Commercial Bank of China to help it repay the $10 billion it received under the TARP.
The major averages pulled back to new lows for the session in late-day trading, although they ended the session just off their worst levels. The Dow closed down 115.65 points or 1.5 percent at 7,660.21, the Nasdaq closed down 37.34 points or 2.4 percent at 1,518.43 and the S&P 500 closed down 16.58 points or 2 percent at 806.34.
In political news, more than 2,500 delegates of Malaysia's ruling United Malays National Organization (UMNO) began a five-day conference on Tuesday to choose the party's new leaders after the party failed to secure its customary two-thirds majority in the March 2008 general elections.
During the five-day meeting, the delegates are expected to choose the party's new president, deputy president, three vice presidents, 25 supreme council members and heads of the youth and women's sections of the party.
Deputy Prime Minister Najib Razak is widely expected to be elected as the party president and as the country's new Prime Minister. If elected, Najib will replace Prime Minister Abdullah Ahmad Badawi, who is widely blamed for the National Front's poor showing in the March 2008 general elections.
The UNMO party has been in power since Malaysia's independence in 1957 and the move to change the party leadership is seen as an acknowledgment by the party leaders that the failure of the party to reform would mostly likely lead to an opposition victory in the 2013 parliamentary elections.
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