Buying Interest Could Sustain

Investors returned from the extended weekend Deepavali festival break to push up the local blue-chip benchmark index to another fresh nine-month high last week on spreading optimism the US rate-hike campaign has ended following the soft October inflation data, before pulling back for profit-taking consolidation on concerns over China’s economic growth momentum due to the weak property sector. Nonetheless, the worries over weakening economic growth momentum in China was cushioned by hopes the US Federal Reserve should end its interest rate hikes and lean towards cutting rates next year.

For the week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) bounced back by 15.49 points, or 1.07 percent to 1,460.67, with Public Bank (+7sen), CIMB (+5sen), Genting Berhad (+18sen), Sime Darby (+10sen) and MISC (+19sen) dominating gains. Average daily traded volume last week was flat at 3.44 billion shares, compared to 3.4 billion shares the previous week, while average daily traded value leveled at RM1.98 billion, against the RM2.01 billion average the previous week.

The FBM KLCI could sustain its rebound momentum this week aided by the resilient domestic economic growth data for the third quarter of 2023, easing tension in relationship between China and the US, potential affirmation from the US Federal Reserve’s November meeting minutes this week that interest rates could have peaked in the US, and the absence of escalation in the conflict between Israel and Hamas with the latest news flows suggesting a potential freeze in combat operations soon to allow the passage of humanitarian aids and the release of some hostages. The US also will announce its initial jobless claims data this week that could attest to a cooling labour market, if the reported figure surpasses October’s 231,000, and solidify expectations for an end to the central bank’s rate hike cycle.

Malaysia’s 3Q23 gross domestic product (GDP) of 3.3% YoY came on the dot with the advanced estimate provided by the Department of Statistics last month while beating Bloomberg consensus forecast of 3.2% YoY and emerging much stronger than 2Q23’s 2.9% YoY. Resilient domestic activities contributed to the slightly better than expected growth, offsetting the drag from a weaker external sector as exports and imports contracted by 12.0% and 11.1% YoY, respectively. Sustained expansion in the services and construction sectors drove the supply side performance while continuity in the demand side growth came from the private consumption and new investments.

Looking ahead, the resilient domestic economy, strong labour market and a pickup in tourism activities are expected to contribute to a stronger growth of 4.6% YoY in the final quarter, which will add up to a full year growth of 4.0%. Next year, it has the potential to hit the upper end of the government’s forecast range of 4% to 5% aided by the huge allocation in Budget 2024, improvement in tourist arrivals and a possible rebound in net exports, potentially benefitting from China’s indication to bolster its domestic consumption and economy through greater fiscal measures to cushion a slowdown in external demand. Besides, on a positive note, China may benefit from the easing of bilateral tensions with the US after a successful meeting between the presidents of both countries last week that will provide the former more time to focus on the domestic economic issues and woo back foreign investors.

On a related note, investors will be watching closely the October trade data that will be released today for more clues that the rate of a year-on-year contraction is easing and the month-on-month improvement seen in September continues. Malaysia’s Consumer Price Index for October is also due this Friday. Consensus is expecting it to ease further to 1.8% YoY from September’s 1.9% YoY, which is likely after the average Brent spot crude oil prices fell 3.4% MoM and 1.4% YoY but it will be affected by the weakness in Ringgit versus the USD.

Source: TA Research - 20 Nov 2023