The local market rose sharply last week, in tandem with global equity markets, as players cheered on news that the US Federal Reserve had decided to delay the tapering of its quantitative easing (QE) programme. Meanwhile, the continued buying interest by foreign funds also aided the FBMKLCI in recouping some lost ground which saw the barometer closing higher by 31pts (or +1.75% WoW) to 1,801.83 last Friday. Both the GROWTH and THEMATIC portfolios outperformed the FBMKLCI on a WoW basis while the DIVIDEND YIELD portfolio underperformed the index by 137 bps WoW. On a YTD basis, all our three model portfolios continued to be ahead of the local market by 799-1188 bps. This week, the market is expected to test the immediate resistance level at 1,810 before pausing for a breather.

Market cheers. Global financial markets including Bursa Malaysia cheered the US Fed’s decision to delay the much talked-about QE tapering. On top of that, the continued net foreign inflows also helped the benchmark FBMKLCI to regain previous lost ground. At the closing bell last Friday, the FBMKLCI advanced by 1.75% WoW or 31pts to end at 1,801.03. Leading index movers last week were CIMB (+6.7% WoW); MAYBANK (+1.8% WoW) and DIGI (+3.5% WoW). Ringgit, meanwhile, also appreciated strongly against the greenback post the FOMC meeting outcome and closed at RM3.165 on last Friday in contrast to RM3.234 (a day prior to the meeting) and its 52-week low of RM3.337 on 28th of August. Going forward, our in-house economics team is expecting Ringgit to continue trading range bound and close at RM3.17 by year-end compared to consensus forecast of RM3.32 based on Bloomberg survey. Meanwhile, we believe global funds would consider re-entering emerging markets, at least for the shortterm, post the deferment of the tapering. Nevertheless, longer-term investors would still tread carefully given that the Fed’s QE tapering although postponed for now is certainly not avoidable.

Coming key economic data include; (i) September U.S. consumer confidence (on 24th of Sept.), where the market expects 80.3 reading, (ii) U.S. 2Q GDP (on 26th of Sept.), and (iii) China’s HSBC flash September manufacturing PMI (on 23rd of Sept.); where the market expects the numbers to improve to 2.7% (vs. 2.5% in 1Q) and 50.9 (vs. 50.1 previously). Our portfolios continued to rebound last week in tandem with the overall positive market sentiment. GROWTH portfolio continued to be the champion last week with total fund value gaining 4.8% WoW, against the FBMKLCI’s hike of 1.8%, helped by FIBON (fund value: +13.9%) and YEELEE (+2.7%). Meanwhile, value for DIVIDEND YIELD portfolio improved by 2.4% WoW, while the THEMATIC portfolio increased by 0.4% WoW. On a YTD basis, all our three portfolios’ total return continued to outperform the benchmark index, with GROWTH (+20.9%) overtaking the THEMATIC (+20.3%) to become the top performer followed by DIVIDEND YIELD (+17.0%) vs. FBMKLCI’s 9.0%.

Shifting focus back to the domestic front for now. With the conclusion of the recent U.S. FOMC meeting, where the Fed had voted to continue its USD85b monthly bond-buying programme, the local market is likely to shift its focus back to local issues, i.e. (i) Umno election on Oct. 5 and (ii) 2014 Malaysia’s Budget announcement on Oct. 25, where we believe the GST implementation timeline could be a key focus. Nevertheless, external factors could continue to affect the market sentiment such as the US debt ceiling deadline in mid-October. While there is a possibility for US government to be forced into sudden cuts or defaulting on its debt (given both Congressional Republicans and White House are still in a battle at this juncture) we believe the disagreement will be resolved eventually. Meanwhile, market volatility is expected to be rear its ugly head as we approach the next FOMC meeting on 29-30th Oct as well as on Dec. 17 and 18. Technically speaking, the FBMKLCI’s short-term technical picture continue to appear intact with an upside bias supported by positive key indicators. While we do not discount that the index may continue to inch up, a potential healthy breather may to kick in given that the benchmark index had enjoyed a good run-up of 4.3% since the beginning of September. The immediate support levels for FBMKLCI are at 1,800 followed by 1,766 while key resistance levels are at 1,810 and 1,826.

Source: Kenanga