FBMKLCI’s Rebound Momentum to Sustain

Property and construction stocks extended profit-taking consolidation early week, but bounced back by late week on bargain hunting, which spilled over to the oil & gas sector, despite concerns over the sticky global inflation situation and uncertain outlook on interest rates that kept most investors sidelined. The local market staged a broad recovery ahead of the weekend, led by the construction, oil & gas, property and plantation sectors on renewed optimism over future contract flows and as China’s economy showed initial recovery signals and after the ECB hinted that interest rates may have peaked.

Week-on-week, the local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) recouped 4.08 points, or 0.28 percent, to 1,459.03, as gains on KLK (+RM2.12), Sime Darby Plantations (+29sen), Petronas Chemicals (+26sen), CIMB (+9sen) and Tenaga (+20sen) overcame falls in IOI Corp (-29sen) and TM (-14sen). Average daily traded volume last week slowed further to 3.03 billion shares, compared to 3.61 billion shares the previous week, while average daily traded value recovered to RM2.40 billion, against the RM2.15 billion average the previous week, thanks largely to a spike in traded value last Friday.

The strong buying interest last Friday is expected to spillover early this week before the FBMKLCI pause to digest the outcome of the Federal Reserve’s meeting this Wednesday where it will provide a summary of economic projections and path for interest rates, known as ‘dot plot’. Market expectations for the Fed to stay pat in this meeting has increased to 98% last Friday from 92% the previous Friday while consensus view for a hike in November has dropped to 27.1% from 43.6% with probability of the rate remaining at 5.25% to 5.50% rising to 72.3% from 53%. The Fed’s decision likely to be in-line with market expectations as the US core inflation continued its southbound journey to 4.3% in August versus 4.7% in July despite the headline Consumer Price Index rising to 3.7% from 3.2% during the same period due to higher energy prices and transportation.

In general, market sentiment should improve with signs of stabilization in China’s economy and expectations that our unity government will speed up fiscal measures to counter the weakness in external demand. Hopes that the global central banks are backing off from further tightening have also increased after the European Central Bank raised its interest rate to a record high of 4% last Thursday and indicated it was likely to be its last.

Better than expected economic data last week increased optimism that China’s economy is stabilizing after a flurry of stimulus measures from the government in the last six months. Point to note, both retail sales and industrial production for August outperformed market expectations strongly at 4.6% YoY and 4.5% YoY versus forecast 3.0% YoY and 3.9% YoY respectively as domestic demand picked up. Even output of key commodities like aluminum, steel and crude refining also rose by 3.1%, 3.2% and 20% respectively.

On the local front, the trade and inflation data for August will be released this week. Consensus view is that exports and imports will sustain a double-digit contraction of 16.5% YoY and 19% YoY respectively while inflation remains tame at 2.1% YoY. Actual data is expected to fall within market expectations due to weak external demand and moderation in food related prices respectively.

Source: TA Research - 18 Sept 2023