FBMKLCI to Continue Consolidation Phase

The blue-chip benchmark index failed to stay above the 1,500-mark last week, as severe forced selling pressure on margined positions in selected lower liners damaged retail sentiment, made worse by back-to-back heavy limit-down losses to historic depressed levels. The utility, construction and technology sectors led losses, with prevailing global growth and spreading geopolitical concerns in the Middle East also dampening market tone. Nonetheless, bargain hunting interest ahead of the weekend on stocks trading as sharply depressed levels managed to lift stock prices to end off lows.

Week-on-week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) eased 0.97 of a point to 1,486.37, with gains on CIMB (+9sen), Public Bank (+5sen) and Sime Darby Plantations (+14sen) clouded by falls on YTL Corp (-18sen), Petronas Chemicals (- 14sen), Maxis (-9sen) and Maybank (-3sen). Average daily traded volume last week stayed high at 5.51 billion shares, compared to 5.42 billion shares the previous week, but average daily traded value was lower at RM3.24 billion, against the RM3.33 billion average the previous week.

The FBMKLCI is one of the few indices in this region, apart from Nikkei and PSEi, that managed to stay in positive territory this year after recording a 2.7% contraction last year. The recent spurt above 1,500 level and subsequent correction was regarded as a healthy consolidation but last week’s multiple limit downs on some lower liners triggered concerns about a wider rot that could take the wind out of the sail. However, the timely assurance from the Securities Commission and Bursa Malaysia about the local market’s strong fundamentals and bargain hunting lifted the benchmark index off last Friday’s low of 1,477.05.

Nonetheless, market sentiment is expected to remain weak in the immediate term as foreigners get distracted by the still strong US equities and cautious retail investors lock in their profits ahead of the Chinese New Year {CNY) festive celebrations. Technology stocks led the S&P 500 and Dow Jones to hit all-time highs last Friday while the Nasdaq Composite surged to its two-year high. A reality check could set in soon with a ramp up in the US earnings reporting season in the next two weeks and investors paying attention to the Federal Reserve’s comments when it meets end of this month, which could reduce the yawning disparity between market expectations and the central bank’s own projections for interest-rate cuts. The December core personal consumption expenditure this Friday could also sway markets if the actual data comes stronger than expected 3.0% versus 3.2% in November.

As for the FBMKLCI’s performance during the CNY period, historical records from 1991 showed the probability for profit taking tendency in the last two weeks prior to the CNY was 51.5% with an average correction of 2%. Meanwhile, the probability for a rally in twoweek period after CNY was 66.7% and rose to 72.7% and 69.7% after a month and three months with an average gain of 4.0%, 4.3% and 7.1% respectively. The strong performance post CNY could have been driven by the return of retail investors and stronger buying interest from local institutions aided by traction in corporate earnings growth as the fourth quarter results reporting season is concluded in February. It also could be due to the fact these investors are positioning themselves to qualify for the final dividends.

Meanwhile, Malaysia’s weaker than expected fourth quarter (4Q) economic growth and December trade data could add to expectations for a continuation in profit taking breather this week. The advanced estimate from the Department of Statistics Malaysia last Friday showed the economy expanded by 3.4% YoY and 3.8% in the 4Q and 2023 versus consensus expectations of 4.1% YoY and 4.0%, respectively. In December 2023, Malaysia's total trade experienced a 4.3% YoY decline to RM225.1bn while the surplus decreased significantly by 57.8% YoY to RM11.8bn from RM28.1bn in December 2022 as exports underperformed expectations (-10.0% YoY versus consensus forecast of -5.0% YoY) while imports grew by 2.9% YoY, weaker than consensus forecast of 4.2% YoY.

As for this week, Malaysia’s December Consumer Price Index and Bank Negara’s Overnight Policy Rate are due today and Wednesday, respectively. Consensus is expecting a tame inflation of 1.5% YoY that would sustain the central bank’s accommodative interest rate of 3.0% in the first meeting for the year.

Source: TA Research - 22 Jan 2024