FBM KLCI

• The FBM KLCI fell 2.2% (35.69 points) last week to close at 1,566.72, weighed down by weak sentiment due to new U.S. restrictions on AI chips and concerns over potential U.S. tariffs under the Trump administration. Friday saw improved sentiment driven by stronger-than-expected economic growth in China and Malaysia's resilient 4QCY24 GDP growth of 4.8%, resulting in full-year growth of 5.1%. Sector-wise, Construction (-12.4%), Utilities (-5.0%), and Property (-4.8%) led losses, while Energy (+0.9%) was the sole gainer.
• Looking forward, the key focus this week will be on Donald Trump's inauguration on January 20, particularly his response to Biden's policies on Chinese tech and global AI chip restrictions. Domestically, BNM's rate decision on January 22 is expected to leave rates unchanged, though regional central bank moves highlight concerns over Trump's potential low-tax, high-tariff policies, which could strengthen the USD and elevate inflation. Gaza ceasefire deal took effect on Sunday after a nearly three-hour delay is also expected to influence market sentiment.
• Technically, despite last week's sharp sell-off, the FBM KLCI's rebound from its weekly low of 1,545 to close at 1,566- slightly above the key 38.2% Fibonacci retracement level at 1,563-suggests a temporary support level. Indicators such as daily stochastic and RSI entering oversold territory point to the potential for a short-term technical rebound. However, the magnitude of any rebound maybe be limited due to uncertainty surrounding Trump's policy announcements.
• In short, market volatility is expected to remain elevated this week, with cautious trading persisting. Any technical rebound is likely to face a vital resistance at 1,582 unless Trump's policy announcements provide a positive surprise for the market. Key support levels are at 1,563 (38.2% Fibonacci retracement), followed by 1,545 and 1,526, while resistance levels are at 1,582 (5-week SMA) and 1,600.

Source: Kenanga Research - 20 Jan 2025