Price Weakness, a Buying Opportunity for Possible Year-end Rally

Despite the firmer tone on regional markets last week on hopes the US is done raising interest rates following recent softer inflation data, the local stock market resumed profit-taking consolidation as follow-through buying commitments continued to underwhelm. Investor caution after the release of recent FOMC meeting minutes that implied continuing vigilance in keeping interest rates high to tame inflation and lacking positive domestic catalysts kept buying interest muted on the broader market.

For the week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) retraced 6.75 points, or 0.46 percent to 1,453.92, with gains in Genting Berhad (+20sen), Genting Malaysia (+11sen) and Public Bank (+2sen) overshadowed by falls on IHH Healthcare (-15sen), PPB Group (-60sen), CIMB (-5sen), KLK (-72sen), MISC (-20sen) and CelcomDigi (-8sen). The average daily traded volume last week remained flat at 3.41 billion shares, compared to 3.44 billion shares the previous week, while the average daily traded value was at RM2.05 billion, against the RM1.98 billion average the previous week.

In the absence of strong catalysts, the FBMKLCI could continue its consolidation while investors watch closely the conclusion of the third quarter 2023 results reporting season of companies listed on Bursa Malaysia this week for more clues on earnings recovery, the outcome of the ongoing truce in Gaza and important economic data in the US and China. While the earnings of most companies' reported results so far came within expectations, nothing is conclusive, with almost 45% of the 106 companies that are being followed yet to report their results. So far, the Auto and Consumer sectors have outperformed expectations, while the Media, Oil & Gas, Property and Technology sectors have underperformed.

Meanwhile, the four-day truce between Israel and Hamas that began last Friday is supposed to witness a total of 50 hostages being exchanged for 150 Palestinian prisoners. The International Committee of the Red Cross confirmed last Saturday that Hamas and Israel have released 17 hostages and 39 prisoners, respectively, and Israel has said the ceasefire could be extended if Hamas continues to release hostages at a rate of at least 10 per day. This is a positive sign and we can only hope the week is off to a good start while mediators find a middle ground that is acceptable for both parties to end the war.

On the economic front, the second reading of the US third quarter (3Q) Gross Domestic Product (GDP), the Federal Reserve’s (Fed) Beige Book, the US core personal consumption expenditure (PCE) for October, and China’s industrial profits and purchasing managers’ indices for October and November, respectively will be on focus this week.

While street expectations are for the 3Q GDP to grow at an annualised pace of 5.0% versus 4.9% in the advanced estimate, the core PCE is forecast to weaken further to 3.5% from 3.7% in the previous month. The data could vindicate market expectations for the Fed to maintain its fund target rate in the December 12 – 13 meeting, while continued improvement in China’s data could solidify the view that supportive policy measures are helping the economy to recover. The point to note is that China's industrial profits gained for a second consecutive month in September, and a continued improvement in October will be a good indication of a recovery in demand and pricing power. This could be supported further by a continuous expansion in the manufacturing and non-manufacturing activities in November, which will be reflected in the PMI data. Investors should react positively to favourable data and vice versa should there be disappointments.

Meanwhile, news about a pneumonia outbreak among children in China could trigger speculative buying into glove and healthcare stocks. Nonetheless, China has reported no "unusual or novel pathogens" in clusters of child pneumonia cases and has attributed a rise in flu-like illnesses to the lifting of Covid curbs.

Source: TA Research - 27 Nov 2023