Go with the flow. Investors will naturally feel upbeat upon entering a brand new year after a tumultuous yet rewarding year in 2020. The benchmark FBMKLCI on the Malaysian bourse dropped 14.0 points or 0.9% in the final week of last year to finish at 1,627. This represents a yearly gain of 38.5 points or 2.4% as our local stock exchange emerged as the top performer among the key ASEAN markets in 2020. On Wall Street, the DJIA rose 406.6 points or 1.3% last week to end at 30,606 for a gain of 2,068.0 points or 7.2% for the whole of last year.

During the closing week of 2020, foreign investors – together with local retail investors – were net buyers of Malaysia equities valued at RM9m and RM200m, respectively, absorbing domestic institutional selling activities (of RM209m). For the entire year, net foreign outflow of RM25.1b was matched by net buying flows from both the local retailers (of RM14.3b) and domestic institutions (of RM10.8b).

Going into 2021, on the back of an outlook anchored by recovery, resilience and rotational thematic plays, there will be windows of trading opportunity for investors as volatility is set to persist on the Malaysian bourse.

To start the ball rolling, a trickle of news flows is anticipated in the week ahead, including the Malaysia Manufacturing PMI and the OPEC meeting (both scheduled for today). And historically speaking, January has shown a mixed performance in terms of stock market returns. The FBMKLCI ended in the red in six of the past 10 years, as well as in the two most recent years. Since 2011, the benchmark index has registered an average monthly return of -0.6% in January.

From a technical perspective, after pulling back 68.8 points or 4.1% from a peak of 1,696 on 14 December last year, the FBMKLCI could kick off the year extending its consolidation pattern with a slight negative bias ahead. This will probably be the case as suggested by its stochastic indicator (with the %K line crossing below the %D line in the overbought territory) and the Bollinger Bands (whereby the index, after moving above the upper band, has now crossed back below the upper band). We place our key support and resistance thresholds for the FBMKLCI at 1,600 (S1) / 1,550 (S2) and 1,645 (R1) / 1,675 (R2), respectively.

In the US, the DJIA is expected to continue its upward trajectory amid strong buying liquidity. Our key support and resistance levels for the DJIA are positioned at 30,600 (S1) / 29,100 (S2) and 31,300 (R1) / 32,350 (R2), respectively.

Source: Kenanga Research - 4 Jan 2021