Profit-taking amid lack of strong follow-through window-dressing support last week offset investor optimism over potential for interest rate cuts in the US sometime next year. The profit-taking corrections and weak window-dressing actions discouraged bargain hunting interest ahead of the weekend, given the weak buying momentum and as investors await key US economic GDP data and inflation readings for further market leads.

Week-on-week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) slipped 8.07 points, or 0.55 percent to 1,454.38, as gains in PPB Group (+40sen), KLK (+48sen), Axiata (+5sen) and Petronas Chemicals (+7sen) were overshadowed by losses on Public Bank (-6sen), Maybank (-11sen), Press Metals Holdings (-11sen), Hong Leong Bank (- 52sen) and IOI Corp (-11sen). Average daily traded volume last week eased to 3.68 billion shares, compared to 3.78 billion shares the previous week, while average daily traded value decreased to RM2.41 billion, against the RM2.69 billion average the previous week.

We are at the tail end of the year and it is still possible for the FBMKLCI to end it on a positive note as last year’s close of 1,495.49 is still within a striking distance. Market took a breather last week as investors opted to cash in their gains ahead of the final reading of the US third quarter gross domestic product (GDP) and core personal consumption expenditure (PCE), which were released last Thursday and Friday, respectively.

The final reading of the GDP came in lower than expected at 4.9%, compared to expectations of 5.2%, while the core PCE, which excludes volatile food and energy prices, increased 0.1% for the month, and was up 3.2% from a year ago. It was lower than the Bloomberg forecast of 3.3% and only rose 1.9% on a six-month basis, indicating the US Federal Reserve’s (Fed) target of 2% is within reach if current trends continue.

As such, the Fed’s indications for three rounds of interest rate cuts in 2024 and another seven in the following two years are highly likely to engineer a soft landing in the US economy. Given the fact that the US will be facing its presidential election next November, the government is also expected to do everything possible to avert a recession in the US economy, which is positive for the global economy and financial markets.

Thus, these latest US economic data should revitalize investor sentiment and provide the much-needed boost in the final four trading days of the year. On a month-on-month basis, the benchmark index was relatively unchanged compared to November’s close of 1,452.74 and hopes are alive that it could at least match the upper range of December’s month-on-month gain in the last five years of between 0.4% (in 2022) and 4.1% (in 2020). Foreigners have turned net buyers again after the Fed meeting last week. Perhaps, we need greater conviction from the local institutional funds as well for a stronger recovery in the FBMKLCI.

In the interim period, investors can consider accumulating undervalued blue chips to ride on the year-end and a potential New Year rally. Banks (ABMB, TP:RM3.80, CIMB, TP:RM6.60 and HLBANK, TP:RM21.60), Oil & Gas (COASTAL, TP:RM2.08, PANTECH, TP:RM1.18, and VELESTO, TP:RM0.33) Telecommunications (TM, TP:RM6.65), and Utilities (MALAKOF, TP:RM0.75, PETGAS, TP:RM20.60 and TENAGA, TP:RM11.00) socks could dominate institutional investors’ interest if they pursue window dressing activities.

Source: TA Research - 26 Dec 2023