As 2010 draws to an end in three week's time, our Malaysian bourse is expected to close the year with a fairly solid performance despite a backdrop of light news flows.

Riding on a recovery momentum, the bellwether FBM KLCI added 6.3-point or 0.4% last week to settle at 1,507.28 (after touching a high of 1,522.95). The FBM 70 Index and the FBM ACE Index were also up (by 1.6% each) through the week. Trading activity rose in tandem to a daily average volume of 1.2b shares (from 979.4m units) valued at RM2.1b (RM1.7b before).
For the current quarter, the FBM KLCI has climbed 3.0% thus far, bringing its year-to-date return to 18.4%. This indicates that our local stock exchange will likely finish the year slightly above the mid-position in the ranking order among the 11 regional markets tracked by us, barring any major swings in the run-up to end- Dec. Indonesia (with a 47.9% increase since end-2009), Thailand (+41.0%) and Philippines (+35.5%) are the top winning markets year-to-date while Japan (-3.2%), China shares listed in Hong Kong (-1.0%) and Hong Kong (+5.9%) rank as the biggest underperformers across the region.

If history is a reliable guide, then our Malaysian bourse should show steadiness for the rest of the year. Past experience says that Dec is usually a profitable month as far as the FBM KLCI is concerned. Since 1987, the benchmark index has risen through the month 20 times. This translates to an 87% chance of a positive monthly return with an average increase of 4.9% over the 23 years. Even more interesting, the key market barometer saw a positive performance in Dec in the past five preceding years with a monthly return ranging between 0.4% and 3.4%.
For Dec 2010, the FBM KLCI is up 1.5% so far, which implies possibly a bit more upside over the next three weeks going by its historical norm despite a dearth of fresh market developments. In the pipeline will be just the U.S. Federal Open Market Committee meeting (scheduled on Tuesday, 14 Dec) that may be of greater interest - particularly on the quantitative easing policy (with implications on the US$ outlook) though the federal funds rate is expected to be kept unchanged - as news flows get thinner with the year-end nearing.

From a technical perspective, the FBM KLCI - after breaking out from a mini downtrend channel - could stage a slow and steady recovery towards the end of the year. The first two resistance thresholds set to be challenged are 1,525 and 1,550. On the downside, our support lines remain at 1,495 (immediate) and 1,465 (next), respectively. This also means the FBM KLCI - which reached a fresh all-time high of 1,531.99 on 10 Nov - will probably close the year not far off from our 2010 technical forecast for the bellwether to peak somewhere between 1,525 and 1,565 (following an upgrade in early Oct from an initial projection of 1,410-1,480 made at the beginning of this year). While reaffirming our bullish market outlook going into the new year, watch this space as we will disclose our 2011 technical prediction for the FBM KLCI in our next write-up.