FBM KLCI (Neutral)

• The FBM KLCI gained for the fourth consecutive week, reaching its highest level in over two years, driven by foreign buying and a strong 1QCY24 GDP growth of 4.2%, beating the 3.9% estimate. On Friday, the index rose 1% (15.9 points) to 1,616.62. Leading sectors were Technology (+7.5%), Healthcare (+5.8%), and Property (+3.4%), with top performers YTL, CIMB, and MAYBANK. Daily traded shares exceeded 6b since last Wednesday, boosted by glove counters, compared to the usual 3b-5b. Weekly turnover increased to 28.69b units worth RM19.76b, up from 24.57b units worth RM16.89b the previous week.

• Looking ahead, the local market direction will likely hinge on the local corporate earnings as we enter the final two weeks of the reporting season. Key economic data to watch this shortened trading week include April’s trade data, set for release on Monday. Notable companies reporting earnings this week are Public Bank, Affin Bank, KLK, Hartalega, and Sime.

• Technically, the index reached another two-year high last week, standing firm above its key resistance of 1,615 and all key weekly SMA levels, indicating that the long-term bullish outlook remains intact. However, there is an increasing short-term risk of a market reversal. The SmartMCDX, which measures buyer (banker) activity based on volume and price movement, has approached the 15 threshold - suggesting buyer activity may soon be exhausted. While profit-taking might occur following the recent sharp rally and technical overbought conditions indicated by weekly stochastic and RSI, the upward trend is likely to continue as long as the index stays above the critical 5-week SMA level (around 1,575).

• In summary, we expect the index to trade sideways with a downward bias ahead of Wednesday’s Wesak holiday. Post holiday, market direction will likely be influenced by local corporate earnings, Nvidia’s earnings, and the US Fed minutes. Key support levels are at 1,615 followed by 1,604 (aligned with the 5-week SMA). Conversely, breaking above the recent high of 1,619 could propel the index to test its next resistance level at 1,633.

Source: Kenanga Research - 20 May 2024